The most overlooked yet most critical topic in leveraged trading is understanding what liquidation is. Because the liquid margin level is the key factor that determines when your position will be closed, and if you don't know this level well, you can suddenly lose all your capital.

Liquid margin is actually a very simple concept. It is the minimum collateral amount required to keep your position open during price movements. If it drops to this level, the exchange automatically closes your position and liquidation occurs. This risk exists in both long and short positions; only the direction differs.

When you open a long position, you believe the price will rise. But what happens if the price moves in the opposite direction? Let's give a simple example. You buy Bitcoin at 20,000 USD with 10x leverage and 1,000 USD capital. The total position size becomes 10,000 USD. If the price drops to 18,000 USD, a 10% decrease, all your capital erodes and you practically experience what liquidation is. At this point, the exchange automatically closes your position to stop your loss. The liquid margin level is this critical point.

In a short position, the situation reverses. In the same scenario, you short Bitcoin at 20,000 USD, expecting the price to fall. But if the price rises to 22,000 USD, a 10% increase, your entire capital again reaches the liquid margin level and liquidation occurs. The danger of leveraged positions lies here; small price movements can turn into big losses.

Actually, when you ask what liquidation is, we are talking about the most important part of risk management. A decrease in price in a long position or an increase in price in a short position causes liquidation. Both mean your capital is completely wiped out. The more leverage you use, the greater this risk becomes.

Therefore, you must always use stop-loss orders when opening a position. Setting a stop-loss below your liquid margin level means limiting your loss in a controlled way. Because the worst answer to "what is liquidation" is ignoring it and suddenly losing all your money. Being conscious in leveraged trading is not only about making profit; it’s about not losing money first.