Trading Cryptocurrency Liquidation

"Trading cryptocurrency liquidation" refers to the phenomenon where investors, due to market fluctuations or operational errors during cryptocurrency trading, find their account margin insufficient to maintain existing positions, leading to forced liquidation by the trading platform. Below is a detailed explanation of cryptocurrency trading liquidation:

Mechanism of Occurrence

Closely tied to leveraged trading, investors use leverage to amplify investment returns while assuming higher risks. Under the margin system, when account funds fall below the maintenance margin level set by the trading platform, the platform automatically liquidates the investor's positions to control risks. If losses after forced liquidation exceed the account balance, resulting in a negative balance, "position piercing" occurs. For example, if an investor uses $1,000 principal with 5x leverage to buy $5,000 worth of Bitcoin, a 20% price drop will wipe out the account, triggering liquidation.

Main Contributing Factors

• Severe Market Volatility Geopolitical events, regulatory policy changes, or release of macroeconomic data can trigger significant cryptocurrency price fluctuations. For instance, in June 2025, the escalation of Middle East conflicts caused Bitcoin to drop 12% in a single day, setting the largest single-hour decline in 2025 and directly triggering chain liquidations.

• High Leverage and Speculative Sentiment Retail investors often use high leverage, making high-leverage accounts extremely vulnerable to liquidation when the market moves against them. In March 2025, Bitcoin's price fluctuated by over 15% in a single day, leading to over 160,000 liquidations worldwide, mostly among speculators overly dependent on leverage.

• Liquidity Drought In extreme market conditions, a large number of liquidation orders can deplete market liquidity, causing prices to fall further and exacerbating liquidation risks. For example, on June 13, 2025, the USDT premium rate on the centralized exchange Binance dropped to -2%, with users frantically withdrawing fiat currency, intensifying market selling pressure.

Impacts and Consequences

• Financial Losses Investors not only lose their principal but may also incur debt due to position piercing.

• Psychological Impact It may leave investors frustrated and doubtful about their investment decisions, even eroding confidence in the cryptocurrency market and affecting daily life and work.

• Credit Damage Trading platforms may label liquidated investors as high-risk users and blacklist them, impacting their future trading and credit records on the platform or with other financial institutions.

To Avoid Cryptocurrency Trading Liquidation

Investors can analyze market trends by evaluating market news and technical indicators, reasonably control leverage ratios, set stop-loss points, and make rational market analyses to operate in line with trading strategies.