← Futures · lesson 6 of 12
By the end of this one you'll know what liquidation is, how the exchange calculates that price before a trade is even opened, and why a quick dip that bounces right back can still take everything.
Liquidation is when the exchange force-closes a position and the deposit is gone, because losses ate through it. It works like the bank and the tractor: if you borrowed against the tractor and the payments stop covering it, the bank doesn't wait for a better season, they come take the tractor at their moment, not yours. The exchange lent out buying power, and it will never let losses cut into the lent part, so it seizes the position while the deposit can still cover the damage. Here's what surprises people: the liquidation price is plain math, printed before the trade is ever entered, not a judgment call somebody makes later. The more leverage in play, the closer that line sits to today's price, until an ordinary everyday wiggle is enough to cross it. And crossing it for one minute counts exactly the same as crossing it for a week.
Same lesson, told by a hundred dollar bill. Tap to walk it one step at a time.
In this example, $100 at 10x controls $1,000 of a coin priced at $10, and the math puts liquidation near $9, a touch sooner once fees are counted, call it $9. 05.
One afternoon the price dips to $9.
02 for five minutes, then climbs right back to $10 by supper.
The position was closed at the dip and the $100 is gone, even though the chart ended the day exactly where it started.
The bounce doesn't undo it, because there's no position left to recover.
Your brother-in-law texts you at 11pm, all caps, then calls. His coin dipped for five minutes this afternoon and bounced right back to where it started by supper, but his $100 is just gone from the app. He keeps saying the same sentence, the price came back, so where's my money.
Pick your move. Then peek at the other roads if you're curious.
Liquidation isn't bad luck or a mystery, it's a line drawn by plain math before the trade is ever opened, and touching it for one minute counts the same as a week.