How to Handle Liquidations on Crypto Futures Trading Platforms

In crypto futures trading, liquidation occurs when a trader’s margin balance falls below the maintenance margin level, forcing the exchange to close the position. Understanding how liquidations work and managing them effectively is critical for protecting your trading capital on platforms like BingX, Binance, Bybit, and Bitget.

This guide explains what liquidation is, its causes, and strategies to minimize liquidation risks.

What Is Liquidation in Crypto Futures Trading?

Liquidation is the process of automatically closing a leveraged position when a trader’s margin balance is insufficient to maintain the position.

- **Key Terms:**

  - **Initial Margin:** The collateral required to open a position.  
  - **Maintenance Margin:** The minimum collateral needed to keep the position open.  
  - **Liquidation Price:** The price at which the exchange closes the position to prevent further losses.

Why Does Liquidation Happen?

1. **High Leverage:** Excessive leverage increases the risk of liquidation due to small price movements. 2. **Insufficient Margin:** Failure to maintain enough margin to cover potential losses. 3. **Volatility:** Sudden price swings in volatile crypto markets can trigger liquidation. 4. **Improper Risk Management:** Lack of stop-loss orders and overexposure to single trades.

How Liquidation Works on Leading Exchanges

BingX

1. **Margin Management:**

  - BingX calculates liquidation based on leverage and maintenance margin.  
  - High leverage lowers the liquidation threshold.

2. **Liquidation Warning:**

  - Traders receive alerts when their margin ratio approaches critical levels.

3. **Partial Liquidation:**

  - BingX may partially close positions to maintain the remaining margin.

4. **Full Liquidation:**

  - If the margin balance falls below maintenance requirements, the entire position is closed.

5. **Learn More:** BingX Registration.

Binance

1. **Maintenance Margin:**

  - Binance calculates the liquidation price based on margin level and leverage.

2. **Margin Call:**

  - A warning is issued when the margin level approaches the liquidation threshold.

3. **Forced Liquidation:**

  - Positions are closed automatically when the margin level hits the maintenance requirement.

4. **Learn More:** Understanding Margin Requirements on Cryptocurrency Futures Exchanges.

Bybit

1. **Liquidation Price Calculation:**

  - Bybit factors leverage, position size, and maintenance margin to determine liquidation levels.

2. **Insurance Fund:**

  - Bybit uses an insurance fund to cover losses exceeding the trader’s collateral.

3. **Notifications:**

  - Traders receive alerts when they are at risk of liquidation.

Bitget

1. **Margin Ratio:**

  - Bitget tracks margin ratios and liquidates positions below the maintenance margin level.

2. **Partial and Full Liquidation:**

  - Partial liquidation may occur to preserve account balance.

3. **Learn More:** How to Use Leverage Settings on Crypto Futures Exchanges.

How to Avoid Liquidation in Futures Trading

1. Use Stop-Loss Orders

Stop-loss orders automatically close positions at a predefined price, minimizing losses.

- **Example:** If you enter a long BTC/USDT position at $30,000, set a stop-loss at $29,500. - **Learn More:** Stop-Loss Orders: How They Work in Futures Trading.

2. Choose Lower Leverage

Using lower leverage reduces the risk of liquidation by providing a larger margin buffer.

- **Tip:** Start with 3x–5x leverage instead of 50x or 100x. - **Learn More:** How to Use Leverage Settings on Crypto Futures Exchanges.

3. Monitor Margin Ratios

Regularly check your margin level to ensure you have sufficient collateral to maintain open positions.

- **BingX Tip:** Use the “Margin Ratio” indicator in the trading dashboard to track your risk.

4. Diversify Positions

Avoid overexposure by spreading capital across multiple trades instead of focusing on a single position.

- **Example:** Allocate 50% to BTC/USDT, 30% to ETH/USDT, and 20% to altcoin futures.

5. Add Margin to Prevent Liquidation

Top up your margin balance if your position is close to liquidation to maintain sufficient collateral.

- **Tip:** Platforms like BingX and Binance allow margin top-ups in real-time.

6. Trade High-Liquidity Pairs

Stick to major pairs like BTC/USDT and ETH/USDT to reduce slippage and unexpected price movements.

- **Learn More:** Volume Indicators in Futures Trading.

7. Use Partial Close Strategies

Close part of your position to reduce exposure and free up margin, lowering the risk of liquidation.

- **Example:** If you hold a 10x leveraged position, close 50% of it to lower risk.

8. Monitor Market Volatility

Crypto futures markets are highly volatile, especially during major news events. Adjust leverage and risk management strategies accordingly.

- **Learn More:** High Volatility in Crypto Futures.

Example: Managing Liquidation Risk on BingX

- **Scenario:** A trader opens a 10x long position on BTC/USDT at $30,000 with $100 margin.

1. **Position Size:** $1,000 (10x leverage).

2. **Liquidation Price:**

  - If BTC falls to $29,300, the position will be liquidated.

3. **Risk Management:**

  - Use a stop-loss order at $29,500 to limit losses to $50.  
  - Add $50 margin to increase collateral and push the liquidation price lower.

4. **Monitor Margin Ratio:**

  - Keep the margin ratio above 10% to prevent liquidation.

Tools for Managing Liquidation Risks

1. **Stop-Loss and Take-Profit Orders:**

  - Automate exits to limit risks and secure profits.

2. **Margin Alerts:**

  - Use platform notifications to receive real-time margin call warnings.

3. **Leverage Adjustment:**

  - Lower leverage to increase the margin buffer.

4. **Position Size Calculators:**

  - Estimate the appropriate position size based on margin and risk tolerance.

5. **Margin Top-Ups:**

  - Add collateral to avoid forced liquidation.

Conclusion

Handling liquidations in crypto futures trading requires a solid understanding of margin requirements, risk management tools, and leverage usage. Platforms like BingX, Binance, Bybit, and Bitget provide the necessary tools to monitor margin levels and minimize liquidation risks. By using stop-loss orders, adjusting leverage, and maintaining sufficient collateral, traders can effectively manage liquidation and protect their capital.

Start trading futures with effective margin management on BingX: BingX Registration.

How to Handle Liquidations on Crypto Futures Trading Platforms

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