Liquidation in crypto is the forced reduction or closure of a leveraged position when its collateral no longer meets maintenance requirements. This guide concerns trading liquidation—not a company selling its assets or winding up.
Liquidation can affect futures, margin accounts and collateralized loans. A fully paid spot holding not used as borrowing collateral is not subject to this mechanism.
Key Takeaways
- Liquidation can begin before a trader’s entire margin balance reaches zero.
- Falling prices move leveraged long positions toward liquidation; rising prices move leveraged shorts toward liquidation.
- Higher leverage generally leaves a smaller price-movement buffer under equivalent position and margin conditions.
- MEXC uses its fair price, also called the mark price, rather than the last traded price to trigger futures liquidation.
- Liquidation price is an estimate based on contract and account conditions—not simply entry price plus or minus 1 divided by leverage.
How Crypto Liquidation Works
Leverage lets a trader control notional exposure larger than the committed margin. Unrealized profit or loss changes the equity supporting the position.
A price decline erodes a long position’s margin buffer; a price increase does the same to a short. At the platform’s risk threshold, its engine may cancel orders, reduce exposure or take over the remaining position.
On MEXC, the maintenance margin rate is the main futures risk indicator. The MEXC liquidation FAQ says liquidation is triggered when it reaches or exceeds 100%. MEXC may first reduce part of a higher-risk-tier position. If the ratio remains at the threshold at the lowest tier, the remaining position can be taken over. Liquidation therefore does not always close the entire position initially.
Initial Margin vs. Maintenance Margin
| Term | Meaning | Purpose |
|---|---|---|
| Initial margin | Collateral required to open the leveraged position | Determines whether the trader can enter the position |
| Maintenance margin | Minimum required support for keeping the position open | Determines when forced reduction or liquidation may begin |
Initial margin is linked to leverage: 5,000 USDT of exposure supported by 500 USDT of initial margin represents 10× before fees and other requirements.
Maintenance margin is the minimum support needed to keep the position open and may depend on size, risk tier and contract rules. MEXC’s margin calculation guide includes maintenance margin and a liquidation fee in its margin-ratio calculation. Liquidation can therefore occur before all margin is lost.
Worked Example: How Losses Reduce the Margin Buffer
Consider a hypothetical linear, USDT-margined BTC perpetual long position:
- Entry price: 50,000 USDT per BTC
- Position size: 0.1 BTC
- Initial position notional: 5,000 USDT
- Initial margin: 500 USDT
- Initial leverage: 10×
If BTC falls to 47,500 USDT, the unrealized loss is:
(47,500 − 50,000) × 0.1 = −250 USDT
Before fees or funding, the 250 USDT loss consumes half of the 500 USDT initial margin.
47,500 USDT is not the liquidation price. The actual threshold depends on maintenance margin, fees, the risk engine’s price reference, margin mode, account equity and contract rules. “Entry price ± 1/leverage” is not an exact liquidation formula.
How Leverage Affects Liquidation Risk
Higher leverage commits less initial margin for the same notional. Under equivalent isolated-position conditions, this usually places liquidation closer to entry because a smaller adverse move can consume the buffer.
For example, the same 5,000 USDT position would require approximately 1,000 USDT at 5× leverage or 500 USDT at 10×, before fees and other requirements. The same 250 USDT loss equals 25% of the first amount but 50% of the second.
This is not an exact threshold. In cross margin, selected leverage affects initial margin, while liquidation price also depends on account balance and other positions. No leverage level makes a position safe.
What Does Liquidation Price Mean?
Liquidation price is the estimated level where a position meets the platform’s liquidation conditions. It is usually below entry for a long and above entry for a short.
It can change after entry because of:
- Added or removed margin
- Changes in position size or average entry price
- Funding payments and trading or liquidation fees
- Unrealized profit or loss elsewhere in a cross-margin account
- Changes in eligible collateral value or maintenance requirements
Adding margin normally moves the threshold farther away, but exposes more capital and cannot eliminate liquidation risk.
Mark Price vs. Last Price vs. Bankruptcy Price
- Mark price or fair price: A calculated reference that reduces the influence of abnormal trades. MEXC uses it to assess liquidation.
- Last traded price: The price of the most recent trade in the order book. It can differ from fair price.
- Bankruptcy price: The theoretical takeover price at which the position’s assigned margin would be exhausted under the contract’s accounting rules.
Liquidation price is the trigger; bankruptcy price is the takeover level for a remaining position. Because MEXC triggers from fair price, liquidation can occur even if a chart showing last price does not touch the threshold. See MEXC’s guide to index price, fair price and last price.
Isolated Margin vs. Cross Margin
| Feature | Isolated margin | Cross margin |
|---|---|---|
| Collateral source | Margin allocated to the individual position | Eligible available collateral is shared under the account rules |
| Risk exposure | Usually concentrated in that position | Losses can consume collateral supporting other cross positions |
| Liquidation price | Mainly affected by that position’s margin and PNL | Can change as account equity and other positions change |
| Trade-off | Limits automatic exposure to other funds | Provides a broader buffer but exposes more eligible collateral |
See MEXC’s guide to isolated and cross margin. Neither mode prevents liquidation; platform rules determine eligible collateral.
Liquidation vs. Stop Loss
Liquidation is a forced action initiated by the platform’s risk engine. A stop loss is a trader-defined conditional order intended to exit at an earlier trigger.
A stop loss can reduce risk but cannot guarantee an exit or prevent liquidation. A limit stop may not fill in a fast market; a market stop may suffer significant slippage. Price gaps, insufficient position size or rapid movement may prevent completion. See MEXC’s futures take-profit and stop-loss FAQ.
How to Reduce Liquidation Risk
Practical exposure-management measures include:
- Reduce position size so each price move has a smaller account impact.
- Use lower leverage to increase the margin buffer under equivalent conditions.
- Monitor liquidation price, fair price, margin ratio, funding and fees.
- Choose margin mode with a clear understanding of which collateral is exposed.
- Use stop-loss orders while accounting for slippage and non-execution risk.
- Add margin only after considering that more capital will be exposed.
- Avoid relying on liquidation as the intended exit strategy.
Where to Check Liquidation Indicators on MEXC
On the MEXC Futures page, check Positions for estimated liquidation price, unrealized PNL and margin information. Fair price appears near the top, and the chart can switch among fair, last and index prices.
In Preferences, traders can enable liquidation alerts and select a margin-rate warning threshold. Liquidated orders appear in Position History. As interfaces change, check the current Futures Trading Page Terminology Guide and contract information.
Frequently Asked Questions
Can you get liquidated when trading crypto without leverage?
An ordinary, fully paid spot holding that is not used as collateral for borrowing is not subject to leveraged-position liquidation. Margin trading, derivatives and collateralized loans can be.
Does 10× leverage mean liquidation happens after a 10% price move?
No. Ten times leverage indicates the relationship between initial position value and margin. The actual liquidation threshold also depends on maintenance margin, fees, funding, margin mode, risk tier and account equity.
Why was my position liquidated if the chart did not reach my liquidation price?
The chart may have been showing last price while the platform used mark or fair price. On MEXC, fair price triggers futures liquidation. The displayed liquidation price may also change with fees, funding or account conditions.
Can a stop loss prevent liquidation?
It can help exit earlier, but it is not guaranteed. A limit order may not fill, while a market order may suffer slippage or complete after the liquidation threshold is reached.
What is the difference between liquidation price and bankruptcy price?
Liquidation price is the risk threshold that triggers forced action. Bankruptcy price is the theoretical takeover level at which the position’s assigned margin would be exhausted under the contract rules.
Does adding margin move the liquidation price?
It generally moves the threshold farther from the current price under otherwise equivalent conditions. However, it exposes additional capital, and continued losses can still cause liquidation.
