Crypto liquidations, often called "forced closures" or "blow-ups," are automatic risk management procedures executed by cryptocurrency exchanges when a trader's margin balance falls below the required level. This guide explains the concept, causes, and preventive measures, using real market data to illustrate key points.
What Are Crypto Liquidations?
In leveraged trading, you borrow funds to magnify your position size. If the market moves against your trade and your collateral can no longer cover potential losses, the exchange will automatically close your position. This process is known as liquidation.
It is a protective mechanism—for both the platform and the trader—to prevent further losses. Think of it as a safety net that activates when your borrowed funds are at risk.
Why Do Liquidations Occur?
Several factors contribute to forced closures in crypto markets:
- High Leverage Usage: While leverage can amplify profits, it equally magnifies losses. Using 5x leverage or higher significantly increases liquidation risks during volatile swings.
- Sudden Market Reversals: A sharp price move opposite to your position—like a rapid drop during a long trade—can trigger margin calls and liquidations.
- Lack of Stop-Loss Orders: Failing to set stop-loss limits leaves traders exposed to unexpected market moves without a predefined exit strategy.
- Low-Liquidity Assets: Less popular cryptocurrencies often have thin order books. Liquidations in these markets can lead to larger losses due to high slippage.
Recent Liquidation Event: July 2025 Market Data
As of July 2, 2025 (UTC), approximately $250 million in liquidations occurred across the global crypto market, affecting over 93,000 traders. Here’s a breakdown of the data:
- Long Position Liquidations: ~$99.1 million
- Short Position Liquidations: ~$150 million
Top Assets by Liquidation Volume:
- Bitcoin (BTC): $57.66 million (combined long and short)
- Ethereum (ETH): $67.56 million (combined long and short)
The largest single liquidation occurred on a BTC/USDT perpetual swap contract, totaling $12.2 million.
This liquidation surge was driven by a rapid Bitcoin price decline from around $107,000 to $105,000, wiping out highly leveraged long positions. Ethereum also experienced a correction, leading to cascading liquidations.
How Can Beginners Avoid Liquidation Risks?
If you're new to cryptocurrency trading, these tips can help you manage risk:
- Start with Spot Trading: Avoid leverage initially. Learn how markets behave without the added complexity and risk of borrowed funds.
- Use Low Leverage: If you do use leverage, keep it conservative—3x or lower—to give your position more room to weather volatility.
- Set Stop-Loss Orders: Define your risk tolerance in advance. For example, set a stop-loss at 5% below your entry price to protect your capital.
- Stick to Liquid Markets: Trade major cryptocurrencies like BTC and ETH on established platforms. These markets have better liquidity, reducing slippage during execution.
- Monitor Liquidation Heatmaps: Tools like liquidation maps show concentration levels of liquidations at certain price points. Use these to avoid entering trades near high-risk zones.
👉 Explore real-time liquidation data tools
Frequently Asked Questions
What does getting liquidated mean in crypto?
It means your position has been forcibly closed by the exchange due to insufficient margin. This happens when losses exceed the collateral you pledged for a leveraged trade.
Can you avoid liquidation?
Yes, by using lower leverage, setting stop-loss orders, maintaining adequate margin, and avoiding overly volatile or illiquid tokens.
What is a liquidation price?
It's the price level at which your position will be automatically closed if the market moves against you. This price is calculated based on your leverage, entry price, and initial margin.
Do liquidations affect market prices?
Yes, large-scale liquidations can lead to cascading sell-offs or buy-ins, amplifying price movements and increasing market volatility.
Which cryptocurrencies get liquidated most often?
BTC and ETH usually see the highest liquidation volumes due to their popularity in derivatives trading, but altcoins with high leverage usage can also experience significant liquidations.
What happens after liquidation?
You lose the margin you used to open the trade. Any remaining balance in your account is still available, but the liquidated position is closed at a loss.
Conclusion
Understanding crypto liquidations is essential for anyone involved in leveraged trading. By learning how they work, why they happen, and how to prevent them, you can trade more confidently and protect your capital. Always prioritize risk management, stay informed with real-time data, and use leverage responsibly.
Market volatility is inevitable, but with careful strategy and discipline, you can reduce your exposure to unnecessary losses.