What Is Liquidation in Crypto?

The plain-English version

When you trade a perpetual future with leverage, you are trading with borrowed money. You post collateral, called margin, and the exchange lends you the rest of the position. The exchange's only concern is getting its loan back, so it watches one number: how much of your margin is left.

If the market moves against you, losses come out of your margin. When what remains falls to the maintenance margin, the minimum the exchange requires to keep the position open, there is no phone call and no grace period. The exchange's liquidation engine takes the position over and closes it with a market order. Your margin is gone. That forced closure is a liquidation.

• Initial margin: what you post to open the position. At 10x leverage it is one tenth of the position's value.
• Maintenance margin: the minimum you must keep. On the largest USDT-margined venues it starts around 0.4 to 0.5% of the position for small sizes and rises in tiers as positions get bigger.
• Liquidation price: the price where your remaining margin hits that minimum. Higher leverage puts it closer to your entry.

A worked example with real numbers

You go long Bitcoin at $60,000 with $1,000 of margin at 10x isolated leverage, on a venue whose tier-1 maintenance margin rate is 0.5%:

Bitcoin falls 9.5%, the mark price touches $54,300, and the exchange market-sells your 0.16667 BTC. You keep nothing of the $1,000, and you had no say in the exit. At 25x the same account liquidates around $57,720, a 3.8% move. Fees and funding pull each of these levels slightly closer in practice. Run your own numbers on the free liquidation price calculator.

The formula above is the standard isolated-margin approximation used by the largest USDT-margined venues. Each exchange publishes its own tiered maintenance margin table and revises it, so check your venue's page for the exact figure.

Why it happens to crowds at the same price

Your liquidation price is not private and it is not unique. Traders pick the same round leverage (10x, 20x, 25x) near the same obvious entries (round numbers, recent highs), so thousands of independent positions end up with liquidation prices within a hair of each other. That stack of forced orders at one price is a liquidation cluster.

A cluster matters because forced closes can add market orders in the same area. A move through several clusters can trigger a liquidation cascade. The map estimates these concentrations; it does not determine the next price move.