Liquidation FAQs for Futures Trading

1. What Is Liquidation?

Liquidation is an essential risk control mechanism in Futures trading. Also known as forced closure or margin call, it occurs when the system automatically closes a trader’s position because the account's margin is insufficient to maintain the open position.

In Futures trading, the Maintenance Margin Ratio (MMR) is the key metric for gauging position risk. When the MMR reaches or exceeds 100%, the system initiates liquidation to protect both the trader and the platform from losses that exceed the account balance.

By fully understanding the liquidation mechanism, traders can manage risk more effectively and avoid unexpected losses. Liquidation isn't a penalty—it's an automated safeguard to prevent negative balances, ensuring transparency and fairness for all market participants.

2. What Triggers Liquidation?

Liquidation is triggered based on the fair price rather than the latest traded price from the order book. The fair price is calculated using index prices from several reputable spot exchanges, helping to prevent price manipulation and unfair liquidations.

When the fair price reaches a position’s liquidation price, the liquidation mechanism is triggered instantly. Traders need to monitor this closely, particularly during periods of high market volatility.

You can easily check the current fair price on the trading chart. Most platforms allow you to switch between three price types: fair price, latest traded price, and index price. Understanding the differences between these helps you decide when to add margin or close a position.

The fair price is typically more stable than the latest traded price, especially in thin markets or during sudden events. This ensures a fairer trading environment for everyone.

3. How Does the Liquidation Process Work?

Once liquidation conditions are met, the system performs a series of prioritized steps to maximize capital preservation for the trader:

Step 1: Cancel Open Orders

This is the first and most crucial step. Depending on the margin mode:

Cross Margin: The system cancels all open orders in the entire Futures account, freeing up margin locked in those orders, which may improve the maintenance margin ratio.

Isolated Margin: Only open orders for the specific contract at risk of liquidation are canceled. Other positions and orders remain unaffected.

Step 2: Auto-Reduce Opposing Positions

In Cross Margin mode, if you hold both Long and Short positions in the same contract, the system automatically reduces those positions (position reduction). This frees up margin by closing offsetting positions, improving your margin status without a full liquidation.

Step 3: Tiered Liquidation

If your maintenance margin ratio remains at a dangerous level after the earlier steps, the system performs tiered liquidation. On major platforms, positions are divided into risk tiers based on size. The system will first partially liquidate the highest-risk tier, then recalculate your MMR.

This process may repeat multiple times until your MMR drops below 100% or the entire position is liquidated.

Step 4: Full Liquidation

If your position is at the lowest risk tier (usually with the lowest leverage) but the maintenance margin ratio is still 100% or higher, the system fully liquidates the position. The platform’s liquidation engine takes over and attempts to close the position at the best available market price.

This entire process is fully automated and extremely fast—typically only a few seconds—to minimize risk for both the trader and the platform.

4. How to View Liquidation Orders

Tracking liquidation history is essential for traders to review and learn from past trades. All liquidation orders are recorded in detail under Position History.

On the Mobile App:

1. Log in to your Futures account
2. Tap the order icon (usually at the bottom of the screen)
3. Select the "Position History" tab
4. All closed positions, including liquidations, will be displayed here
5. Liquidation orders are clearly marked as "Liquidation" or "Thanh lý"

On the Web Interface:

1. In the top right navigation, click "Orders"
2. Select "Futures Orders" from the dropdown menu
3. Switch to the "Position History" tab
4. The system displays a complete list of closed positions, including liquidations

Within liquidation history, you can find key details such as the actual liquidation price, liquidation amount, liquidation fee, time, and reason. This information is crucial for analyzing and improving your trading strategy.

5. Maintenance Margin and Maintenance Margin Ratio Explained

Maintenance Margin Ratio (MMR)

The MMR is the most critical metric for gauging liquidation risk. It's a dynamic value, continuously recalculated based on market price changes and account status.

MMR Formula:

MMR = (Maintenance Margin + Estimated Liquidation Fee) / (Position Margin + Unrealized PNL)

Where:

• Maintenance Margin: Minimum required to keep the position open
• Estimated Liquidation Fee: Projected cost if liquidation occurs
• Position Margin: Initial margin for the position
• Unrealized PNL: Current unrealized profit or loss

Risk Assessment via MMR:

• MMR < 100%: Position is safe; the lower, the safer
• MMR = 100%: Danger threshold; liquidation is triggered
• MMR > 100%: Position is being or about to be liquidated

Traders should monitor MMR regularly and set alerts at 80–90% to allow time to react before liquidation.

Maintenance Margin

Maintenance margin is the minimum amount you must keep in your account to hold an open position. This is mandated by the trading platform and typically ranges from 0.4% to 50% of the position value, depending on leverage.

Maintenance Margin Formula:

For USDT-M Futures (USDT-denominated Futures):

Maintenance Margin = Average Entry Price × Contract Value × Position Size × Maintenance Margin Ratio

Example: If you open a 1 BTC Long at $50,000 with a 0.5% maintenance margin ratio:

• Maintenance Margin = 50,000 × 1 × 1 × 0.5% = 250 USDT

For Coin-M Futures (coin-denominated Futures):

Maintenance Margin = (Position Size × Contract Value / Average Entry Price) × Maintenance Margin Ratio

The main difference between USDT-M and Coin-M Futures is the calculation unit: USDT-M uses stablecoins, while Coin-M uses the underlying coin (e.g., BTC, ETH).

The maintenance margin ratio generally rises as position size increases. Larger positions require higher maintenance margins to reduce system risk from major liquidations.

6. How to Calculate Liquidation Price

The liquidation price is the level at which your position will be forcibly closed. Knowing this price helps you assess risk and set stop losses appropriately.

Isolated Margin Mode (Isolated Margin)

In this mode, each position has dedicated margin, not shared with others. The liquidation price formula is relatively straightforward:

For Long Positions:

Liquidation Price = (Maintenance Margin – Position Margin + Average Entry Price × Contract Value × Size) / (Contract Value × Size)

Example: You open a 1 BTC Long at $50,000 with 10x leverage:

• Position Margin = 50,000 / 10 = 5,000 USDT
• Maintenance Margin = 50,000 × 0.5% = 250 USDT
• Liquidation Price = (250 - 5,000 + 50,000) / 1 = 45,250 USDT

If BTC drops to $45,250, your position will be liquidated.

For Short Positions:

Liquidation Price = (Average Entry Price × Contract Value × Size – Maintenance Margin + Position Margin) / (Contract Value × Size)

Example: You open a 1 BTC Short at $50,000 with 10x leverage:

• Position Margin = 5,000 USDT
• Maintenance Margin = 250 USDT
• Liquidation Price = (50,000 - 250 + 5,000) / 1 = 54,750 USDT

If BTC rises to $54,750, your Short will be liquidated.

Cross Margin Mode

In Cross Margin mode, liquidation price calculation is much more complex because:

1. Shared margin pool: All positions share a single margin pool
2. Mutual impact: PNL from one position can support or increase risk for another
3. Dynamically changing: The liquidation price changes as you open/close other positions

Because of this complexity, most platforms provide automated calculators for estimating liquidation price. Use these tools instead of manual calculations.

Important: In Cross Margin, a highly profitable position can offset losses in others and reduce liquidation risk, but multiple losing positions will quickly increase risk.

7. Is Liquidation Price the Same as Bankruptcy Price?

This is a common misconception. The short answer: No, they are completely different.

Liquidation Price

This is the trigger point for liquidation. When the fair price touches the liquidation price, the system begins the liquidation process as described above. Your account still retains some margin at this point.

Bankruptcy Price

The bankruptcy price is the point where all initial margin for the position is lost. If the price hits this level, you lose 100% of the margin you posted for that position.

Key Differences

The liquidation price is always "safer" than the bankruptcy price by a margin equal to the maintenance margin plus estimated liquidation fees. When liquidation happens:

1. The system takes over the position at the liquidation price
2. The liquidation engine tries to close it on the market
3. If closed at a better price than bankruptcy, the difference goes to the Insurance Fund
4. If not closed before bankruptcy, the Insurance Fund covers the loss

This ensures you never lose more than your posted margin (no negative balance), while protecting the platform’s integrity.

8. Relationship Between Leverage and Liquidation Price

Leverage and liquidation price are closely linked, but the relationship depends on the margin mode.

In Cross Margin Mode

Here, leverage only affects the initial margin needed to open a position; it does not directly set the liquidation price.

Example:

• Open a 1 BTC Long at $50,000 with 10x leverage: margin required is 5,000 USDT
• Open a 1 BTC Long at $50,000 with 20x leverage: margin required is 2,500 USDT

If your account balance is the same (say, 10,000 USDT), the liquidation price is the same in both cases, since both can use the entire balance as buffer.

The difference: with 20x leverage you use less margin, keeping more available for other positions or as a buffer.

In Isolated Margin Mode

Here, the leverage–liquidation price relationship is direct and clear:

Higher leverage → Liquidation price closer to entry → Higher risk of liquidation

Example for a 1 BTC Long at $50,000:

• 5x Leverage:

  • Margin = 10,000 USDT
  • Liquidation price ≈ $40,250
  • Safety buffer: 19.5%

• 10x Leverage:

  • Margin = 5,000 USDT
  • Liquidation price ≈ $45,250
  • Safety buffer: 9.5%

• 20x Leverage:

  • Margin = 2,500 USDT
  • Liquidation price ≈ $47,625
  • Safety buffer: 4.75%

The higher the leverage, the narrower the "safety zone"—making liquidation more likely during market swings.

Practical Tips

1. For beginners: Use low leverage (2–5x) for a wider safety margin
2. For experienced traders: Higher leverage (10–20x) is possible, but always employ strict stop losses
3. Avoid: Extreme leverage (50–125x) unless you’re a professional and fully understand the risk

9. Why Does the Liquidated Position Value (USDT) Differ from the Initial Value?

This often confuses traders when reviewing liquidation history. Several factors cause the difference:

1. Underlying Asset Price Fluctuations

Your position’s value is based on the entry price. When liquidation occurs, the price may have changed significantly.

Example:

• Open 10 ETH Long at $3,000 → Position value = $30,000
• ETH falls to $2,500 at liquidation → Liquidation value = 10 × $2,500 = $25,000

The liquidation amount is: Quantity × Average execution price at liquidation

2. Tiered Partial Liquidation

The system can liquidate parts of your position at different prices, resulting in an average liquidation value different from your entry.

3. Liquidation Fees and Slippage

When liquidated, two costs apply:

• Liquidation Fee: Usually 0.3–0.5% of position value
• Slippage: Difference between expected and actual execution price

In thin or volatile markets, slippage can be significant, reducing your actual liquidation value.

4. Cross Margin Mode

Here, the calculation is even more complex because:

• Margin is shared among positions
• PNL from other positions affects your overall balance
• Partial liquidation may occur if your situation improves

How to Interpret This

Instead of focusing on USDT value, watch:

• Actual liquidation price vs. entry price
• Percentage loss rather than absolute dollars
• Fees and costs incurred

Understanding this helps you avoid surprises when reviewing your history and better evaluate your trading performance.

10. How to Avoid Liquidation

Every Futures trader aims to avoid liquidation. Here are effective ways to minimize liquidation risk:

1. Add Margin or Reduce Leverage

This is the most direct and effective way to widen the buffer between the current price and your liquidation price.

Adding Margin:

• In Isolated Margin: Add margin directly to the position
• In Cross Margin: Deposit more funds into your Futures account
• Best time: When MMR reaches 70–80%, before the danger zone

Reducing Leverage:

• Can only be done before opening or while adjusting a position
• Dropping leverage from 20x to 10x can more than double your distance to the liquidation price
• Especially helpful during volatile markets

Note: Both methods reduce profit potential, but greatly improve safety.

2. Set Stop-Loss Orders

Stop-loss (SL) orders are vital in Futures trading, acting as the last safety net before liquidation.

Effective SL Strategies:

• SL Placement: Set SL at 50–70% of the distance from entry to liquidation price
• Example: If entry is $50,000 and liquidation is $45,000, set SL at $47,000–$47,500

Types of SL Orders:

• Stop Market: Instantly executes at trigger price to guarantee closure
• Stop Limit: Allows price control, but may not trigger if the market moves fast
• Trailing Stop: Adjusts automatically with price, protecting profits

SL Benefits:

• Limits losses to acceptable levels
• Prevents total margin loss from liquidation
• Maintains trading discipline
• Protects your account when you can’t monitor the market

3. Set Liquidation Alerts

Most modern Futures platforms offer automated alerts to help you manage risk.

How to Set Alerts:

1. Go to Settings or Preferences
2. Find Liquidation Alert
3. Enable it and set your desired MMR threshold
4. Select your preferred alert method: Email, SMS, push notification, or all three

Recommended Alert Thresholds:

• Level 1: MMR at 60%—early warning, monitor closely
• Level 2: MMR at 80%—serious, act promptly
• Level 3: MMR at 90%—critical, take immediate action

When Alerted:

• Assess market trends
• Decide whether to add margin, partially close, or fully close a position
• Check if you can cancel open orders to free up margin
• Consider placing a stop-loss if you haven’t already

4. Additional Strategies

Sound Capital Management:

• Never use more than 20–30% of your capital on a single position
• Keep a reserve for emergencies

Timing:

• Avoid opening positions before major events (e.g., rate decisions, big news)
• Reduce position size or add margin during high-volatility periods

Analytical Tools:

• Monitor market liquidity indicators
• Use liquidation price calculators before opening positions
• Check the market Long/Short ratio to gauge sentiment

Conclusion

Leverage trading in Futures is a double-edged sword—it can amplify returns, but also carries significant risks, with liquidation being the most serious.

For long-term, successful Futures trading, the priority is not just maximizing profit—it’s effective risk management. By understanding how liquidation works, knowing how to calculate key metrics, and using the right preventative strategies, you give yourself the best chance of long-term survival in the market.

Remember these golden rules:

1. Never use excessive leverage without adequate experience
2. Always set a stop-loss for every position
3. Monitor your MMR frequently and respond promptly to alerts
4. Keep some reserve capital for emergencies
5. Learn from each liquidation (if it happens) to refine your strategy

Remember: In Futures trading, capital preservation is always more important than chasing profits. Only by surviving long enough can you achieve lasting success.

FAQ

What is liquidation in Futures trading? How does it work?

Liquidation is the closing of a position when your margin is insufficient to maintain it. If the price moves against you and your losses exceed your margin, the system will automatically close your position to prevent a negative balance. This is a critical risk-management mechanism in margin trading.

When will my account be liquidated? How is the liquidation threshold calculated?

Your account is liquidated when your margin ratio falls below 5%. Liquidation threshold = Total asset value ÷ Total payments × 100%. If your cash flow is negative or margin is insufficient, the system will automatically close your positions to protect your account.

How can I avoid liquidation in Futures trading?

To avoid liquidation, set reasonable stop-losses, avoid excessive leverage, control your position size, maintain a margin reserve, and monitor the market regularly to adjust your strategy as needed.

What are the consequences of liquidation? How much money will I lose?

When liquidated, you will lose your entire margin. The position is forcibly closed at the market price, which can result in large losses if the price moves sharply. The maximum loss is the margin you posted.

What is the relationship between margin ratio and liquidation?

The lower your margin ratio, the higher your risk of liquidation. When it drops to the limit, your position will be automatically liquidated. Managing your margin ratio effectively is key to avoiding liquidation.

Can I recover my account after liquidation?

Once your account is liquidated, the position is closed and cannot be restored. However, you can deposit more funds and open new positions to continue trading.

How is forced liquidation different from voluntary liquidation?

Forced liquidation occurs when the platform closes your position automatically due to insufficient margin; voluntary liquidation is when you close a position yourself before liquidation. Forced liquidation usually causes bigger losses because you can't control the execution price.

What are the fees and costs associated with liquidation?

Liquidation fees are typically 5–10% of your position value, depending on your account risk. Costs include trading fees and interest. The exact fee varies by platform and market conditions.