How Exchange Liquidation Engines Operate
When trading perpetual futures, exchanges require a minimum margin balance (Maintenance Margin) to support open risk. If market movements push your position equity below this threshold, the exchange liquidation engine seizes the position and closes it at market, charging an additional liquidation fee.
Isolated vs. Cross Margin:
Always use Isolated Margin for speculative setups. Cross margin allows a single rogue position to drain your entire wallet balance.
Calculating Liquidation Price Buffer
At 10x leverage, your liquidation point sits roughly 9% away from entry. At 20x leverage, it sits less than 4.5% away. A sudden liquidity wick can trigger liquidation before you have time to react manually.
Place your stop-loss order at a logical structural level, well before the liquidation price. Never let the exchange liquidation engine act as your stop-loss.
Practical Leverage Rules
- Keep effective leverage on total portfolio equity below 3x across all open positions.
- Factor ongoing funding rate payments into longer holding periods to prevent slow margin decay.
- Never add collateral to a losing margin position to delay liquidation.