## Liquidation in Cryptocurrency Trading: Mechanism, Risks, and How to Avoid It

Modern crypto trading often involves the use of leverage and borrowed funds. But when the market moves against you, there may come a moment when the platform forcibly closes your positions. This phenomenon is called liquidation — and it can cost traders a significant amount of money.

### How the liquidation mechanism works

When a trader opens a position using leverage on an exchange or through a margin trading platform, the platform requires maintaining a certain level of collateral. These are the so-called maintenance margin requirements. If the value of the position drops quickly enough, the account's margin balance falls below a critical level.

When this happens, the platform does not wait for the trader’s actions — it automatically initiates the forced closing of positions at current market prices. This system acts as a protective mechanism: it prevents the accumulation of additional debt and ensures that the platform can recover the owed funds.

### Why liquidation occurs exactly this way

The key point is the automatic trigger when a pre-set margin threshold is reached. Most platforms have clearly defined levels at which the system automatically activates liquidation. The trader cannot stop or delay it if their account falls below the minimum. This is not punishment, but rather a safeguard against the risk of losing funds.

### The scale of financial losses

Liquidation is a phenomenon that can lead to the complete loss of the trader’s deposit and even to a negative balance on the account. Besides the main losses from an unsuccessful trade, the trader loses on forced position closures, often at worse prices during volatility.

Let’s look at current quotes of major assets: BTC is trading at 84,838.18 USDT with a decrease of 1.46%, ETH is at 2,786.35 USDT (-1.29%), BNB — 822.15 USDT (-2.60%). In such volatile conditions, the risk of liquidation for leveraged holders remains high.

### How to minimize the risk of liquidation

Effective risk management is the only way to protect your capital:

- **Use conservative leverage.** The higher the leverage, the closer you are to liquidation. Experienced traders prefer low leverage and controlled positions.

- **Set stop-loss orders.** This allows you to close your position at your desired price before it reaches the liquidation level.

- **Constantly monitor your margin ratio.** Know how far you are from the critical level. Many platforms display the margin utilization percentage.

- **Do not trade with your entire deposit.** Reserve part of your funds for margin top-ups in adverse situations.

- **Learn the rules of the specific platform.** Different exchanges set different liquidation thresholds and calculation methods.

Liquidation in cryptocurrency trading is not an uncommon event, especially during periods of increased volatility. Understanding how it works and applying disciplined risk management are essential skills for every trader working with leverage.