Crypto Futures Liquidation

Margin, Maintenance Margin and the Liquidation Price

A futures position is opened with margin: collateral posted against a larger exposure. At ten times leverage, 1,000 dollars of margin controls a 10,000 dollar position, so a 10 percent move the wrong way would erase the stake entirely. Liquidation arrives before that point, because the exchange also sets a maintenance margin, a smaller cushion the account must keep at all times.

The numbers are venue specific. Hyperliquid's documentation sets maintenance margin at half the initial margin at an asset's maximum leverage, which works out at between 1.25 percent and 16.7 percent depending on the asset. Binance's liquidation rules define the trigger as collateral, including unrealised profit and loss, falling below maintenance margin, and measure it against the mark price, a reference price designed so that one wild trade on a thin order book cannot trigger it alone. Your liquidation price is simply the mark price at which that happens.

How Liquidation in Crypto Futures Closes a Position

There is no phone call and no deadline: the venue's risk engine acts on its own. Hyperliquid first sends market orders for the position to the order book, starting with 20 percent of any position above 100,000 USDC. Binance first tries to cut the position just far enough to restore the maintenance requirement. Collateral that survives a clean close generally stays with the trader, less any fee: Binance charges a liquidation clearance fee, while Hyperliquid says it charges none.

If the book cannot absorb the position before the margin is gone, it becomes bankrupt. Binance's insurance fund, a reserve built to cover such shortfalls, then takes it over at the bankruptcy price. When the fund cannot, the venue falls back to auto-deleveraging, which closes winning traders on the other side.

Isolated Versus Cross Margin

Isolated margin ring fences collateral to one position, so a liquidation can only take what was assigned to it. Cross margin lets every position draw on the whole account balance. That keeps a struggling position alive longer, but it puts everything behind it. Hyperliquid's documentation is blunt: when cross positions are backstop liquidated and the trader holds nothing in isolated mode, the account ends with zero equity.

Cascades and Short Squeezes

Because a liquidation is a market order, it pushes the price. Closing a long means selling. Closing a short means buying the contract back. When many traders use similar leverage, their liquidation prices sit in clusters, and each forced trade can drag the mark price into the next cluster. That chain reaction is a liquidation cascade.

A short squeeze is the same loop pointing upwards: rising prices liquidate shorts, the forced buying lifts the price, and the next tier of shorts goes. On 21 September 2026 CoinDesk reported that shorts made up 647.9 million dollars of 746.6 million dollars in 24 hour liquidations, and 95 percent of the previous hour's. That buying was involuntary, so a squeeze says little about whether anyone wants the asset at the new price. Funding rates hint at which side is crowded. A liquidity sweep is a different idea: price running through resting stop orders, not margin running out.

The practical rule: read the venue's liquidation price before you open a position, not after. Lower leverage moves it further away, isolated margin limits what one position can take with it, and, as our beginner guide to crypto trading warns, a stop order does not guarantee you exit first in a fast market.