One of the most frequently asked questions in leverage trading is what liquidation is. That’s because a position can be closed suddenly and you can lose your collateral faster than it may seem at first. This risk becomes even more serious for those who open positions with high leverage.

In fact, the liquidation mechanism is a system that needs to be understood. Put simply, when your collateral falls to a certain level due to price movements, the exchange automatically closes your position. This is where the liquidation margin comes into play.

Let’s give an example. Suppose you open a long position on Bitcoin with 10x leverage. You have 1000 USD in collateral and you enter at 20.000 USD. In this case, you control a position worth 10.000 USD. If the price drops to 18.000 USD—meaning a 10% decline—you lose your entire collateral. This point is your liquidation price. The exchange automatically closes your position, and your 1000 USD of capital is gone.

The situation is similar for a short position, but it works in the opposite direction. Under the same conditions, if you open a short and the price rises to 22.000 USD, that same 10% move will wipe out your collateral. This time, the price increase brings your loss.

Fundamentally, a price drop causes liquidation for a long position, while a price rise causes liquidation for a short position. The liquidation margin level indicates the minimum amount of collateral needed to keep your position open. If it falls below this level, the trade is automatically closed.

That’s why you need to calculate the liquidation margin level carefully every time you open a position. Controlling your risk by using stop loss orders is a smarter strategy in the long run. Especially with high leverage, overlooking these details can be costly. Even if leverage trading seems attractive, risk management should always come first. The same principles apply when doing these trades on Gate as well—double-check your calculations before opening a position.