The essential risk management guide for every digital asset trader.
Crypto liquidation occurs when an exchange forcibly closes a trader's position because they no longer have enough margin (collateral) to maintain that position. This usually happens in margin trading or futures trading when the market moves against the trader's position.
When you trade with leverage, you borrow capital from the exchange. Your initial deposit acts as collateral. If the value of your position drops significantly, the exchange triggers a liquidation event to recover the borrowed funds, protecting both the exchange and the market from insolvency.
A: Most modern exchanges use an "Insurance Fund" to prevent negative balances, so you generally cannot lose more than your total collateral, but your position will be wiped out.
A: Use Stop-Loss orders, lower your leverage, and maintain a high collateral ratio to withstand market volatility.