What is Liquidation in perpetual trading?

Liquidation is the biggest risk of doing perpetual trading. It occurs when a trader fails to maintain maintenance margin. When liquidated, the balance in all futures accounts of the trader will be forfeited.

The main factor that affects liquidation is the level of leverage used. The higher the level of leverage used, the lower the tolerance for price volatility. In other words, the higher the level of leverage, the more vulnerable to liquidation.

For example, you open a BTC/USDT position with a margin of $50 and use 10x leverage. The position will be worth $500. However, if the BTC price turns out to be corrected by 10%, the loss will be equivalent to $50 and make the trader's initial capital disappear. The exchange will then liquidate your account before the BTC price drops further.