What is liquidation in leveraged trading is a very important question. If you are holding a long or short position, understanding the liquidation margin level is crucial. Because when this level is exceeded, your position is automatically closed and you lose your collateral.

I believe the best way is to see it with examples. Let’s say you went long on Bitcoin from $20,000 with 10x leverage. You have $1,000, but you opened a $10,000 position. If you ask what liquidation is here, the answer is simple: if the price drops to $18,000—that is, it falls 10%—all your capital is wiped out. This is the point where the exchange automatically closes your position. No warning, no options. Your $1,000 is gone.

Looking from the short side, it’s the opposite. In the same way, you short from $20,000 with 10x leverage, with $1,000 collateral. This time, if the price rises, the risk starts. If it goes up to $22,000—again, a 10% increase—you reach the liquidation level. The position closes and your collateral runs out.

In fact, the liquidation risk for long and short positions comes from different directions. In longs, price drops scare you; in shorts, price rises does. But in both cases, the result is the same: if the specified margin level is exceeded, the position is automatically closed.

My advice is that when opening a position, always calculate this liquidation margin level and place stop-loss orders. If you don’t control your risk, leverage can wipe you out very quickly. The answer to the question of what liquidation is, is actually this: in leveraged trading, the limit of loss. If you exceed this limit, your account is automatically closed. That’s why you should always be careful.