What Does "Liquidation" Mean in Crypto?
If you’ve ever heard someone say “liquidation is coming” in the crypto world, it can sound scary. But what does it actually mean?
In crypto trading, many people borrow money to trade more than they own. This is called trading on leverage. Let’s say you have $100 and you use 10x leverage. Now, you’re trading with $1,000. Cool, right? But there’s a catch — if the price of the coin moves against you, you can lose your money very quickly.
Here’s a simple example using Bitcoin (BTC):
You borrow money to open a long position (you think the price will go up).
Bitcoin is at $30,000. You use 10x leverage, so you control $1,000 worth of BTC with only $100.
But the price drops to $29,000. Your loss is now $100 — your entire money.
The exchange automatically liquidates your position. That means they close your trade to prevent further loss — because it’s not their money on the line, it’s yours.
Liquidation can also happen on short positions (where traders bet the price will go down). If the price rises too much, the exchange will liquidate that position too.
Traders hate liquidations because it means they lose all (or most) of their money in that trade. That’s why people warn “liquidation is coming” when the market is moving fast — it means a lot of traders are at risk of being forced out of their positions.
The Bottom Line:
Liquidation happens when the market moves too much against a leveraged trade. It’s like a game with borrowed money — big risk, big reward, but also big danger.
So next time you hear “liquidation is coming,” it means the market is shaking things up!
