What is liquidation in crypto, and when does it trigger?

What does liquidation in crypto mean, voluntary or forced?

A voluntary liquidation is a sale you choose: you sell tokens and hold cash or a stablecoin. You pick the price, the timing, and the venue. Headlines about a company that liquidates its crypto holdings usually describe this case. The word signals a decision to exit, and the market reads it as new supply.

A forced liquidation is a closing that someone else triggers. The party holding your collateral sells it, or closes your position, because the loan or the leveraged trade no longer meets its rules. The choice of timing moves to the venue, and the sale often lands in a fast market. This page follows the forced case, since that case drives crash dynamics.

What sets the trigger price of a liquidation in crypto?

The trigger price comes from 3 inputs: the size of the position, the amount of margin, and the maintenance level the venue requires. The leverage ratio links them. Take a $1,000 margin on a $5,000 long position, which is 5x leverage. A fall of about 20% in the asset price erases the margin, so the venue sets its closing level a little above that point.

Venues show a liquidation price for each position on the trading screen, and the figure moves when you add or remove margin. Fees, funding charges, and the maintenance rate shift it as well. Check the number before you open a trade, because the distance between the entry price and the liquidation price is the room you have.

How do maintenance margin and a margin call work in crypto?

Maintenance margin is the minimum collateral a venue requires to keep a position open. Initial margin opens the trade, and maintenance margin keeps it alive. When equity falls toward the maintenance level, some venues send a warning or ask for more collateral. That request is a margin call, and adding funds moves the liquidation price away from the market price.

Crypto markets run around the clock, so a margin call can arrive at night, and many venues close the position automatically without any call. A trader who expects a phone call finds the position gone at the next candle. Alerts and spare collateral give you back some control, because a top-up before the trigger keeps the position open.

Does a crypto liquidation close the whole position or part of it?

Both exist. Some venues close a position in slices, reducing its size until the remaining margin meets the maintenance level again. Others close the whole position at once. Partial closing leaves a smaller position open, so a trader may keep some exposure after the first event. Full closing ends the trade and returns any remaining margin, after fees.

The rule depends on the venue and the contract, and it can change with account size. Read the venue’s liquidation documentation before you trade, and find the fee charged on a forced closing. That fee can be higher than a normal trading fee, because the venue takes on the risk of a fast exit.

What happens when a liquidation in crypto misses its price?

In a fast fall, the market can jump past the closing level. The venue then sells at the next available price, which is lower than planned, and the account can end with a negative balance. Many venues keep a reserve, often called an insurance fund, to cover such gaps so that profitable traders still receive their gains.

When the reserve runs short, some venues reduce the positions of profitable counterparties, a step known as auto-deleveraging. The mechanism differs by venue and by contract. For a reader, the lesson is practical: the stated liquidation price describes the plan, and a fast market can deliver a different fill.

How do lending protocols liquidate crypto collateral?

Crypto loans work with collateral worth more than the loan. A borrower locks tokens and receives a smaller amount in cash or stablecoins. When the collateral value falls, the ratio between loan and collateral worsens. Past a set limit, the lender or protocol sells part of the collateral to repay the loan.

Collateral is often a volatile token, so the safety margin shrinks at the same moment the loan becomes riskier. A drop in the token can therefore trigger sales of that same token. Lenders show a health ratio or a similar gauge, and borrowers who watch it can add collateral or repay part of the loan in time.

How can a holder prepare for liquidation in crypto?

Start with the facts of your accounts. List every place where you borrow or trade with leverage, note each liquidation price, and measure the gap to the current market. Choose lower leverage when the gap looks small. A 2x position leaves far more room than a 10x position, because the margin absorbs a larger fall.

Methods for scoring such exposure appear on the EQOS Asia method page, and the Λ simulator lets a team test a stress case. This page is general information, not investment advice, and describes the situation as of October 2026.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile