What happens at liquidation

1. The mark price touches the level

Exchanges do not watch the last traded price for this. They use a mark price, built from the spot price on several markets, so that one large order on the exchange itself cannot push positions into liquidation. A wick on the chart that the mark price did not follow does not liquidate you; a slow drift that it does follow will.

2. The exchange takes the position

Once the margin left in the position is at or below the maintenance margin, the exchange's liquidation engine closes it. Large positions on some exchanges are first reduced to a lower tier, which needs less maintenance margin, before the rest is closed.

3. What is left of the margin

In isolated margin you lose the margin in that position, and usually the small rest as well: it pays the closing fee and goes to the exchange's insurance fund. In cross margin the whole futures balance is at risk, not one position.

4. When the market moves too fast

If the engine cannot close the position at a price at or better than the bankruptcy price, the insurance fund covers the gap. When the fund is not enough, profitable traders on the other side can have their positions reduced automatically (auto-deleveraging).

How to stay away from it

• Put a stop loss well before the liquidation price, so you decide the exit and the loss is the one you planned.
• Use less leverage. At 10× a 9–10 % move against you is enough; at 50× it is under 2 %.
• Check the tier: a large position falls into a higher tier with a higher maintenance-margin rate, which brings the liquidation price closer.
• Count funding. Paying funding for days reduces the margin and moves the liquidation price closer.