Liquidation principles and risk management essential guide for crypto leverage trading

What is Get Liquidated?

Get Liquidated (Liquidation) refers to the situation in Margin Trading where, if your margin is insufficient to maintain your position, the exchange will automatically force a liquidation to prevent losses from expanding, causing your principal to nearly reach zero. For example, if you buy Bitcoin with 10x leverage and the price drops by about 10%, it triggers liquidation.

The operation mechanism of Get Liquidated

In margin trading, each leveraged position must maintain a certain margin ratio. Once the market price approaches the liquidation price and the margin falls below the maintenance line, the system will initiate a forced liquidation to sell the position and avoid further losses.

The main reason for getting liquidated

1. High margin trading operations amplify risk;

2. Lack of reasonable stop-loss, losses continue to deepen;

3. The volatility of coins is severe, especially for low market cap or meme coins;

4. Over-reliance on market sentiment and blindly following the trend.

The Actual Impact of Getting Liquidated

Getting liquidated not only reduces the principal to zero, but also often brings psychological pressure and a collapse of trading confidence. In centralized exchanges, frequent liquidations may affect credit and advanced rights qualifications.

How to avoid getting liquidated?

1. Control the margin trading multiple, it is recommended for beginners to use 2 to 3 times;

2. Set stop-loss points to timely stop losses and avoid expanding losses;

3. Choose to trade mainstream coins with lower volatility;

4. Use a isolated margin mode for risk management to avoid getting liquidated on the entire account;

5. Maintain sufficient margin and reserve buffer funds.

The Difference in Web3 Get Liquidated

Decentralized exchanges manage margin and liquidation lines publicly through smart contracts, offering high transparency and no customer service intervention. However, users must take responsibility for risk management and handling, with no safety net, and the risk of getting liquidated must be taken on with caution.

Summary

In the crypto market, margin trading carries significant risks. Fully understanding the get liquidated mechanism, reasonably controlling leverage, and strictly implementing risk management are the cornerstones of long-term stable profits. The market teaches us that respecting risk is a compulsory lesson in trading.