Crypto Liquidation: What It Is, Why It Happens, and How to Avoid It

When you trade crypto with leverage, crypto liquidation, the forced closing of a leveraged position when losses hit a critical threshold. Also known as margin call, it’s what happens when your trade goes bad and the exchange automatically shuts you down to prevent deeper losses. It’s not a glitch. It’s not a hack. It’s a built-in safety net — one that often snaps shut on inexperienced traders who don’t understand how much risk they’re really taking.

Most people think crypto liquidation only happens in extreme crashes. But it’s just as likely to hit you during a 5% dip if you’re trading 10x or 20x leverage. Exchanges like dYdX, a decentralized platform offering up to 20x leverage on perpetual contracts and Thalex, an institutional-grade derivatives exchange for Bitcoin and Ethereum let you borrow large sums to amplify gains — but they also have zero tolerance for losses. Your liquidation price, the exact price at which your position gets closed automatically isn’t a suggestion. It’s a hard stop. Cross it, and your collateral — sometimes all of it — vanishes.

Why do so many traders get wiped out? Because they treat leverage like free money. They see a coin pumping and think, "I’ll go all in with 20x." They ignore the math. They don’t check their liquidation price. They don’t set stop-losses. And when the market flips — and it always does — they’re left staring at a zero balance. The no loss offset rule in India, a tax policy that forces traders to pay tax on every profit even if they lost money elsewhere makes it worse. Even if you lose 80% of your account, you still owe taxes on the 20% you made earlier. Liquidation doesn’t just kill your position — it can kill your finances.

But here’s the truth: you don’t have to be a victim. Smart traders use leverage like a scalpel, not a sledgehammer. They keep position sizes small. They track their liquidation price like a heartbeat. They know that surviving the market is more important than winning one trade. The posts below show you exactly how this plays out — from the mechanics of liquidation on platforms like BitAsset and dYdX, to how risky tokens like xMOON and BURNS can trigger chain reactions that bury leveraged positions. You’ll see how traders in India, Nigeria, and Cambodia get crushed by the same hidden rules. And you’ll learn what separates those who walk away from those who get erased.