TradingIntermediate#Risk#Leverage
Liquidation
L
Definition
The forced closing of a leveraged position by an exchange when the user's collateral is no longer sufficient to cover the potential losses.
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Concept Diagram
Key Takeaways
1
Liquidation is the forced closure of a leveraged position when collateral is insufficient
2
With 10x leverage a 10% adverse move wipes out your entire position
3
Large players hunt liquidation pools to trigger chain reactions for their own entries
4
Never use leverage levels that make liquidation probable instead of rare
Practical Example
You open a $10,000 BTC long with 10x leverage ($1,000 collateral). If BTC drops 10% from entry, your $1,000 is wiped out and the exchange forcibly closes your position at a loss.
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