Game over, market version: understanding and avoiding liquidation

Game over, market version. Liquidation is the moment when the platform closes your position for you, without notice or possible discussion. Any trader who uses leverage has a liquidation price displayed somewhere on their screen. Many prefer not to watch it. Bad idea, because this figure is the only boundary between a position under pressure and an empty account.

Liquidation, or the bill of leverage

Let's start from the beginning. When you open a leveraged position, you only commit a fraction of the amount actually exposed, the margin (the collateral posted as security). 10x leverage, so $1,000 margin for $10,000 exposure. If the market declines about 10%, your loss eats up the entire guarantee. The platform will never take this risk for you, so it automatically closes the position a little before this point, collects the margin and leaves you to meditate. Here is the liquidation.

The exact liquidation price depends on the leverage, type of margin (isolated or cross) and fees. The higher the lever, the more this threshold sticks to your entry price. At 50x, a 2% move is enough. You might as well play a coin.

And the danger is collective. A liquidation results in a sell order at the market, which pushes the price down, which triggers other liquidations one step lower, and so on. Traders call it a waterfall. One domino, then a thousand.

October 10, 2025: the cascade of liquidations that broke all records

One Friday in October, an announcement of customs duties from Donald Trump against China, and the crypto market discovered how much debt it was in. In a few hours, bitcoin slipped from $122,500 to $107,000, while some altcoins dropped 40 to 80% during the session before rebounding. Results, according to Coinglass data taken by CoinDesk on January 1, 2026: $19.13 billion in positions liquidated in 24 hours, for more than 1.6 million traders ejected. About nine times the previous daily record.

The biggest leverage purge in industry history needed neither a hack nor a bankruptcy. A geopolitical sentence was enough. Those trading with reasonable leverage had a very bad day. The others didn't see the end of the day.

Avoiding liquidation when you are an individual trader

The lesson is three habits. Keep leverage modest, one that lets the market breathe without throwing you out at the first jolt. Systematically place a stop-loss before your liquidation price, because a chosen loss always costs less than an incurred loss. And only deposit on the sidelines what you agree to lose in full, since this is precisely what disappears the day everything goes wrong.

Let’s broaden the frame. Perpetual contracts concentrate most of the crypto market's volumes, far ahead of spot purchases, so much so that an October 10-style cascade is less of an accident than a structural characteristic. That day, 1.6 million accounts thought they had time to react. The market gave them a few hours.