Recently, many beginners have been discussing liquidation, which is indeed one of the riskiest pitfalls in the crypto world. Today, I will explain this issue thoroughly so everyone understands what liquidation really is and why it happens.

**What is liquidation?**

Simply put, liquidation means your account has gone into negative balance. This can happen in virtual currencies, futures, forex, and other trading fields. But there is a key concept you need to understand first — the margin account.

A margin account is essentially a credit account. For example, if you want to invest in a product but don’t have enough money, you can put in a portion of your funds as margin, proportionally, and the platform will cover the rest, charging you interest. This way, you can control more assets with less capital.

Sounds good, right? The problem is, if the margin in your account turns negative, it results in a liquidation. Note that liquidation isn’t just losing your own money — for example, in Bitcoin trading, liquidation means your margin is gone, the coins you bought are gone, and sometimes you even owe money to the platform.

**Why does liquidation happen? One word: leverage**

Leverage trading allows you to make large trades with small amounts of money. You might use $1,000 to control $5,000 worth of assets, or even more. That’s the power of leverage.

But behind this power lies risk. Suppose you use $1,000 with 5x leverage to buy Bitcoin, which means you’re effectively spending $5,000 to buy coins, but only putting in 20% of that yourself. If the price of the coin rises, you earn five times the profit; if it falls, you suffer five times the loss.

What’s more frightening is that even a small drop in price can wipe out your margin. A sudden plunge in the coin’s price can instantly turn your account balance negative — and that’s how liquidation happens.

**Historical catastrophic liquidations**

There have been many single-day liquidation events in the crypto space that rank among the top ten in history, each serving as a bloody lesson. Most liquidations occur in major coins like Bitcoin and Ethereum, especially during periods of high volatility or sudden news shocks.

Particularly attention-grabbing are the whale liquidations, because the amounts are staggering — sometimes tens of millions or even hundreds of millions of dollars being liquidated. This also reminds us that no matter how wealthy or experienced you are, leverage can cause you to blow up your account.

**How to avoid liquidation?**

There are basically two ways. First, avoid using leverage or use very small leverage, so you won’t get liquidated at all. Second, if you must use leverage, you need to manage risk properly — set stop-loss orders, don’t over-leverage your position, and keep a close eye on market movements.

Many people get liquidated when the market is hot because greed clouds their judgment. They add excessive leverage without setting proper defenses. When the market reverses sharply, their accounts are wiped out instantly.

So, yes, there are many ways to make money in crypto, but there are also many who get liquidated. If you haven’t clearly assessed your risk tolerance, it’s best to stick to spot trading and avoid leverage altogether.