Bitget beginner's guide: How to avoid liquidation in futures trading

What is futures liquidation?

Liquidation occurs when the margin in your futures account is no longer sufficient to cover your losses in futures trading. To prevent further losses, the platform forcibly closes the position, which can result in your account balance dropping to zero. This typically happens during high market volatility, especially when excessive leverage is used or risk is poorly managed.

Example:
User A has $10,000 in capital and opens a 10x long position on Bitcoin (equivalent to buying $100,000 worth of BTC). Bitcoin price: $30,000

Liquidation process:

1. Bitcoin falls to $27,000 (down 10%)

2. With 10x leverage, User A's loss reaches 100% of the capital ($100,000 × 10% = $10,000)

3. The exchange will liquidate the position — User A's $10,000 is completely wiped out.

4. If the price keeps falling, the exchange may even lose part of the $90,000 it lent (collateral shortfall).

Why is liquidation so common in futures trading?

The main reason is unforeseen price swings that cause your margin to drop below the required level, triggering liquidation. Leverage amplifies not only your potential profits but also your potential losses — even a small adverse movement can rapidly wipe out your capital, leading to liquidation. Common causes of liquidation:

1. Excessive leverage

￮ Example: You buy BTC with 10x leverage, using 10% of your total investment as margin. A 10% price drop leads to immediate liquidation.

￮ Problem: High leverage leaves very little room for price fluctuations — even small moves can trigger liquidation.

2. Not setting a stop-loss

￮ Example: You go long on ETH, and the price starts to fall, but you don't set a stop-loss. The price keeps crashing, and your margin runs out, leading to liquidation.

￮ Problem: The market doesn't always rebound. Blindly hoping for a rebound can lead to uncontrollable losses.

3. Increasing positions with unrealized gains

￮ Example: BTC rises from $50,000 to $60,000, and you keep increasing your long position. When the price pulls back to $58,000, your margin will soon be wiped out, triggering liquidation.

￮ Problem: Increasing positions based on unrealized profits also raises your liquidation price.

How to avoid liquidation?

Preventing liquidation requires smart trading strategies and strong risk management. Here are some practical tips:

1. Control leverage
Liquidation risk increases directly with leverage. The higher the leverage, the greater the chance of liquidation.

• Example: With $10,000 in principal and 5x leverage (20% of total investment as margin), you open a $50,000 BTC long position.

￮ If Bitcoin rises by 20%, the profit will be 100% ($10,000).

￮ If the price falls by 20%, it will result in a loss of the entire principal. A further decline will trigger liquidation.

• Suggestion: Beginners should use low leverage. Keep your margin at 10% or higher to allow for more price movement.

2. Set a stop-loss
In volatile markets, even low leverage can result in liquidation. A stop-loss is key to managing risk.

• Purpose: The stop-loss automatically closes a position to limit losses. For example:

￮ You buy BTC at $10,000 and set a stop-loss at $8000 — a 20% decline triggers the sell order.

• Note: The stop-loss configuration can't fully help avoid liquidation (especially in sharp crashes with slippage), but it significantly reduces risk.

• Tip: Always calculate the maximum loss you can afford before opening a position and stick to it.

In short: Low leverage + strict stop-loss = core strategy to avoid liquidation

How to manage funds

Fund management is a widely recognized method for adjusting position sizes to reduce risk while maximizing the growth potential of a trading account. Good fund management is key to preventing liquidation. Here are some suggestions:

• Risk allocation: The risk of each transaction should be controlled at 5%–10% of the account's funds. For example, with an account of 10,000 USDT, the risk of each transaction cannot exceed 500–1000 USDT.

• Diversification: Avoid investing all your assets into a single position to mitigate the impact of single-market fluctuations.

• Regular reviews: Regularly analyze your trading records to fine-tune your use of leverage and position sizing.

Example:

User B has $20,000 in the account and splits the funds into four parts: $5000 each in BTC, ETH, and other assets. Even if the BTC position gets liquidated, 75% of the funds remain unaffected and available for future trades.