What does Bitcoin liquidation mean?

Bitcoin liquidation refers to the phenomenon that in Bitcoin leverage or contract trading, the trading platform forces the position to close due to violent price fluctuations, due to the minimum required for maintaining the transaction. When investors use leverage trading, they only need to pay a small amount of margin to control a larger amount of Bitcoin. However, reverse price fluctuations will amplify losses. If the loss causes the margin to be lower than the specified ratio of the platform, the platform will issue an additional margin notice. If investors cannot make up for it in time, the platform will force the position to close, causing investors to lose margin or even invest all. This is the position to be liquidated.

Bitcoin liquidation refers to a phenomenon in which the Bitcoin price fluctuates greatly in a direction that is unfavorable to investors, causing the investor's account equity (margin) to be lower than the minimum level required to maintain the transaction, and thus forced to close the position by the trading platform. The following is a detailed introduction:

Basics of trading mechanism

In leveraged trading or contract trading, investors only need to pay a certain percentage of margin to control trading positions that are much larger than the margin amount. For example, an investor pays $1,000 in margin and trades Bitcoin with 10 times leverage, which is equivalent to trading Bitcoin worth $10,000.

The process of liquidation

• Investor losses are amplified when the price of Bitcoin moves in the opposite direction to investors' expectations. If the loss reaches a certain level, so that the margin balance in the account is lower than the maintenance margin ratio specified by the trading platform (usually lower than the initial margin ratio), the trading platform will issue a notice of additional margin.
• If an investor fails to make up the margin within the specified time, in order to avoid its own risks, the trading platform will force the investor's position to close the position, that is, sell or buy back the Bitcoin contract held by the investor to settle the transaction. At this time, investors will suffer a large loss and may even lose all margin, which is a liquidation position.

For example, an investor bought a Bitcoin contract for $10,000 and paid a margin of $1,000 using 10 times the leverage. If the price of Bitcoin falls by 10%, the investor's loss is US$1,000 (10,000×10%), and the margin balance is only US$0. If the trading platform stipulates that the maintenance margin ratio is 5%, that is, US$500 (10,000×5%), then investors need to make up the margin immediately. If investors cannot make up for it in time, the platform will force the position to close, and the investor's US$1,000 margin will be lost. This is the situation of the liquidation.

The explosion of Bitcoin’s position is mainly due to the violent fluctuations in Bitcoin prices and the amplification effect of leverage, which greatly increases the risks faced by investors. Therefore, when conducting Bitcoin leverage or contract trading, investors need to fully understand the relevant risks and operate with caution.

Mainstream cryptocurrency exchanges in 2025:

Ouyi OKX:

Binance Binance:

Gateio Sesame Opening:

bitget:

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