Liquidation in Margin Trading – The Trap Beginners Fall Into
When you use leverage on Binance, you are essentially borrowing an amount from the platform to open a position larger than your balance. But the problem is that any small movement against the direction of your position can kick you out of the game, and this is what we call "liquidation".
So what is liquidation?
It is the moment when the market reaches a point where your loss equals your actual capital, so Binance automatically closes the position to prevent losing the money they lent you as leverage.
An example to illustrate:
You entered a position of $100 and chose a leverage of ×20.
This means you are trading as if you have $2,000.
If the market drops by just 5% against your expectation, your position gets wiped out and liquidated.
Whereas if you only used a leverage of ×2, the same drop would cause you a smaller loss, and you might be able to adjust the position before it gets wiped out.