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What Is Liquidation?

Liquidation refers to the automatic closure of your leveraged or borrowed positions by the trading platform when your account margin is insufficient to cover potential losses. This action is taken by the system to prevent your account from going into debt.

Margin can be thought of as a “security deposit” that enables you to control larger positions through leverage. The higher the leverage, the more susceptible your position is to price fluctuations, which can quickly amplify losses and deplete your margin, bringing you closer to the platform’s liquidation threshold.

In crypto markets, liquidation is most common in perpetual contracts and scenarios involving shorting or going long with borrowed funds. Spot trading, which does not involve borrowing or leverage, generally does not result in liquidation.

How Does Liquidation Work?

The liquidation mechanism is triggered when your margin ratio falls below the platform’s required maintenance margin, and the mark price hits the liquidation price.

Maintenance margin acts as the “minimum inventory line.” Falling below this threshold prompts intervention by the system. The mark price is a reference price calculated from a basket of external quotations, reducing risks of price manipulation through single trades. The liquidation price is a risk threshold determined by your entry price, leverage, trading fees, and maintenance margin.

When liquidation is triggered, the system will close all or part of your position according to its risk controls. Some platforms also employ insurance funds and auto-deleveraging (ADL) mechanisms: insurance funds act as a buffer to absorb losses caused by liquidations; if this buffer is insufficient, counterparties’ high-leverage positions may be automatically reduced to maintain overall risk balance.

How Is Liquidation Triggered in Gate Contract Trading?

On Gate’s perpetual contracts, liquidation occurs when the mark price reaches the liquidation price and your account margin ratio drops below the maintenance margin ratio.

On Gate’s contract trading interface, each position displays both its “liquidation price” and “maintenance margin ratio.” In isolated margin mode, losses affect only that specific position’s margin; in cross margin mode, account equity is shared across all positions, resulting in a different liquidation price. Gate prioritizes partial liquidations and risk limits to reduce systemic risk, only performing full liquidations if necessary.

The funding rate settles costs between long and short positions, impacting both holding costs and the liquidation price. During periods of high funding rates, long-term holding becomes more expensive, increasing the risk of liquidation. It is recommended to use stop-loss orders on Gate, monitor real-time liquidation price estimates, and track the mark price rather than relying solely on the latest trade price.

For example: If you go long with 10x leverage at an entry price of 100 and the maintenance margin ratio increases or the price drops rapidly, the calculated liquidation price may approach your entry point. Once the mark price reaches this level and your margin ratio is inadequate, your position will be forcibly closed.

What Is the Difference Between Liquidation and Stop-Loss?

Liquidation is a passive, last-resort system action; stop-loss is an exit price you set proactively to limit your losses at a predefined level.

A stop-loss is set and executed by you. While its execution may be affected by market liquidity (leading to slippage), it can help you exit before reaching liquidation. Liquidation, on the other hand, is triggered by platform risk controls when your margin is insufficient and does not depend on your input. In summary, a stop-loss is a risk management tool, while liquidation is an emergency protection after risk management has failed.

On Gate, setting a stop-loss allows you to exit before hitting the liquidation price, helping you avoid forced liquidations and potential extra fees or auto-deleveraging impacts.

What Are Common Scenarios for Liquidation?

Liquidations often occur during periods of high leverage combined with extreme volatility, low liquidity, or high funding rates.

During major data releases or unexpected market events (such as macroeconomic announcements or sudden regulatory news), prices may gap significantly, causing increased stop-loss slippage and a cascade of liquidations in a short time frame. Tokens with small market caps have thinner order books, making them more susceptible to large price swings from relatively small trades—raising the risk of forced liquidation.

According to public liquidation statistics, as of November 2025, the total daily liquidation volume on certain high-volatility trading days exceeded $3 billion (Source: CoinGlass, 2025-11). Such “liquidation waves” typically occur when leverage is heavily concentrated in one direction.

Funding rates may also remain biased during trending markets, increasing holding costs and pushing traders closer to their liquidation lines over time. During periods of low liquidity—such as nights and weekends—price swings can be exaggerated, further raising liquidation risks.

How Can You Avoid Liquidation?

Step 1: Use lower leverage. Leverage amplifies both gains and losses—the higher the leverage, the closer you are to your liquidation price. Limiting leverage to what your capital can withstand is the most effective way to reduce risk.

Step 2: Set stop-losses and allow for buffer space. Place stop-losses above the liquidation price to account for slippage and fees, avoiding situations where sudden market moves skip over your stop-loss order.

Step 3: Prefer isolated margin mode. Isolated margin contains risk within individual positions, preventing one losing trade from affecting your entire account. Cross margin is better suited for experienced fund managers.

Step 4: Monitor both mark price and liquidation price closely. Only the mark price triggers liquidations; regularly review real-time changes in your liquidation price (influenced by funding rates and maintenance margin ratio), and reduce positions or add margin as needed.

Step 5: Control position size and entry density. Avoid opening multiple large positions in the same direction at once; allow room for liquidity and volatility. Enter trades in batches and use limit orders to reduce slippage risks.

Step 6: Steer clear of high-risk periods or events. Exercise caution with leverage during macroeconomic announcements, major project updates, or times of low liquidity such as overnight or weekends. On Gate, consider lowering leverage or closing part of your position before such events.

What Should You Do After Liquidation?

Step 1: Review your P&L and record all details—including trigger time, mark price, liquidation price, funding rate, and fees—to reconstruct the event chain.

Step 2: Analyze what went wrong. Assess if leverage was too high, if stop-losses were missing, if positions were overly concentrated, or if you neglected changes in mark price and maintenance margin requirements.

Step 3: Adjust risk parameters. Lower leverage multiples, switch to isolated margin mode, enable stop-losses and liquidation alerts on Gate, and optimize position opening rules.

Step 4: Rebuild your capital management plan. Set a fixed risk limit for each trade (such as 1%–2% of account equity) to ensure no single trade endangers your overall capital.

Step 5: Regain trading rhythm gradually. Avoid immediately going “all-in” in an attempt to recover losses. Test strategy reliability with smaller positions before scaling up again.

Summary of Liquidation & Risk Warnings

Liquidation is a system-triggered forced closure due to insufficient margin—the core mechanism involves maintenance margin requirements, mark price, and liquidation price thresholds. On platforms like Gate, factors such as isolated vs cross margin modes, funding rates, risk limits, and insurance funds together determine how liquidations are handled. Reducing leverage, setting stop-losses, monitoring liquidation prices, controlling position sizes, and avoiding high-risk periods are practical defenses against forced liquidations.

When it comes to capital safety: leveraged trading is not suitable for everyone; no strategy can eliminate risk—only transfer or reduce it. Choose products and leverage levels according to your financial capacity and experience, and always use available risk management tools and platform warnings as a priority.

FAQ

Will I Owe Money to the Platform After Liquidation?

In most cases, your losses are limited to your margin after liquidation—you won’t owe additional funds. However, in extreme events (such as flash crashes), losses may exceed your margin on some platforms that could seek repayment for any shortfall. Trading on regulated platforms like Gate provides safeguards through robust risk controls and bankruptcy insurance funds that protect users from negative balances.

Does Higher Leverage Increase My Risk of Liquidation?

Yes—liquidation risk increases proportionally with leverage. With 10x leverage, just a 10% adverse price move will trigger liquidation; at 3x leverage, it takes a 33% move. Beginners are advised to start with lower leverage (3–5x), become familiar with associated risks first, and always use stop-loss orders for timely exits.

Can I Recover Quickly After Being Liquidated Due to a Wrong Market Call?

Liquidation indicates a failed trade—trying to recover losses too quickly often leads to even greater losses. The correct approach is to calmly review what went wrong and restart with an adjusted strategy. Use remaining capital with prudent strategies to gradually recover instead of increasing leverage in hopes of a quick comeback; this usually compounds losses further.

Do All Tokens on Gate Have the Same Liquidation Risk?

No—different tokens have varying volatility levels that affect their liquidation risk. Mainstream tokens like BTC and ETH tend to be less volatile than small-cap tokens; therefore, using equal leverage on smaller tokens carries higher liquidation risk. Beginners should choose mainstream tokens with good liquidity and relatively stable prices on Gate rather than high-risk small-cap tokens when trading with leverage.

Why Are There Liquidation Fees After Liquidation?

Liquidation fees are charged by platforms to cover the costs incurred during forced closure of positions. When you are liquidated, the platform must rapidly close your contract positions to control risk—this process incurs trading and operational costs. These fees are typically deducted from any remaining margin balance; this is industry standard practice. Gate clearly discloses its liquidation fee rates to users.