Liquidation is one of the most feared words in a trader’s vocabulary — and for good reason. In leveraged markets, liquidation means your position has lost so much value that your margin can no longer support it, forcing your broker to close the trade and potentially wipe your account to zero. At Leverage.Trading, we’ve analyzed thousands of cases where traders fell into this trap, and the same patterns repeat: excessive leverage, poor margin control, and lack of protective stops.
While liquidation can happen in any leveraged market — crypto, forex, or equities — the mechanics and risks vary between asset classes. Understanding these differences is the first step to protecting your capital. In fact, many of the same risk factors that cause liquidation also lead to over-leveraging, a common beginner mistake that magnifies losses. Similarly, knowing the rules around margin calls can give you time to act before it’s too late.
In this guide, you’ll learn exactly what liquidation is, why it happens, and the practical steps you can take to avoid it — from position sizing and margin isolation to disciplined stop-loss placement.
Key Takeaways
- Liquidation occurs when your account equity drops below the maintenance margin required to keep a position open.
- It’s the broker’s way of protecting against further losses that could exceed your deposited funds.
- High leverage ratios increase the risk of liquidation, often reducing the margin for error to a fraction of a percent.
- Using isolated margin, stop-loss orders, and disciplined position sizing can help prevent forced liquidations.
- Understanding liquidation mechanics is essential for long-term survival in leveraged markets.
If you are worried about getting liquidated, feel free to use our guide on high leverage trading strategies to improve your risk management skills.
Liquidation in margin trading is what happens when your position has lost too much capital and your margin can’t support the overall losses of your account.
When you get liquidated, all your positions are closed out, and all your funds are lost.
This is probably the worst-case scenario for any investor and today we are going to break down exactly what liquidation is and how we can avoid it in the future.
When it comes to trade management, controlling your risk of liquidation is a priority, even when you are planning your trade.
To find out more about how margin positions work, see this guide:
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