What Are Long and Short Liquidations in Crypto?
Long and short liquidations are forced closes of leveraged crypto trades by an exchange. A long is closed when price falls, a short when price rises.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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On a crypto exchange you can put up margin and borrow the rest to open a position larger than your money. That borrowed money is why liquidations exist.
What Are Long and Short Liquidations?
A liquidation is a forced close of a leveraged crypto position by the exchange. A long gains when price rises, so it is liquidated when price falls. A short gains when price falls, so it is liquidated when price rises.
How Is the Liquidation Price Set?
Three things set a liquidation price: the entry price, the leverage, and the maintenance margin. Maintenance margin is the smallest amount of margin the exchange lets you keep in an open position. Higher leverage moves it closer to the entry price.
What Happens During a Liquidation?
When the price reaches the liquidation level, the exchange closes the position at the market price. It charges fees, uses the rest of your margin, and can draw on its insurance fund.
- Your margin covers part of the loss.
- Forced long closes sell, adding downward pressure.
- Forced short closes buy, adding upward pressure.
- A wave of them can trigger more liquidations elsewhere.
How Does It Differ From a Stop-Loss?
A stop-loss is an order you place yourself to close a position at a price you choose. A liquidation is forced by the exchange when your margin drops below the maintenance margin.
Frequently asked questions
The smallest amount of margin the exchange requires you to keep in an open position.
Usually the position closes before losses pass your margin, though slippage can leave a shortfall.
It covers losses when a liquidated position cannot repay what it borrowed.
No. Exchanges set their own margin levels, fees and insurance fund rules.
