Liquidation is the most critical risk event in futures trading, meaning your margin has been completely wiped out. Before starting futures trading, register on Binance and practice on the demo account first.
What Is Liquidation
Liquidation (also called forced liquidation or forced closure) occurs when your losses approach your total margin amount. When a position's maintenance margin is insufficient to cover the unrealized loss, the exchange forcibly closes your position, and the remaining margin is used to settle the loss.
How Liquidation Price Is Calculated
The liquidation price depends on three factors: entry price, leverage, and margin. Higher leverage means the liquidation price is closer to your entry price. For example, with 10x leverage going long on BTC, a roughly 10% adverse price movement will trigger liquidation. With 20x leverage, only about 5% adverse movement is needed.
How to Avoid Liquidation
- Control leverage: Beginners should use 3-5x; don't exceed 10x
- Set stop-losses: Set a stop-loss price for every trade
- Control position size: Don't open a position with all your funds
- Use isolated margin mode: Limits the maximum loss per trade
- Monitor market volatility: Reduce or close positions before major news releases
What Happens After Liquidation
In isolated margin mode, liquidation only costs the margin for that specific position -- other funds are unaffected. In cross margin mode, liquidation may consume the entire futures account balance. Binance doesn't create negative balances -- the maximum loss is your margin.
Binance's Protection Mechanisms
Binance has an insurance fund to cover losses from gap-through events, plus an ADL (Auto-Deleveraging) mechanism to prevent systemic market risk. These mechanisms protect normal users from being affected by others' liquidations.
Download the Binance APP and use the demo trading feature to practice before trading with real funds.