Liquidation Mechanics

Liquidation is the exchange closing your position because your margin can no longer cover the position's risk. It is not a punishment — it is the collateral math hitting zero faith.

Maintenance margin: the real floor

You post initial margin to open. Below it sits maintenance margin — the minimum equity the exchange requires to keep the position alive. The liquidation engine fires when equity touches maintenance, which is BEFORE your margin reaches zero. At high leverage the gap between entry and liquidation is brutally small, and always smaller than the naive distance-to-zero table in lesson 2.

Why liquidation is worse than your stop

A stop-loss is your exit at your price, executed as a normal order. Liquidation is a forced market close at the worst possible moment, often with a liquidation fee, in fast conditions with slippage. The same losing trade costs measurably more through liquidation than through a stop. There is no scenario where "let it ride to liq" beats "honor the stop" on cost.

The wick problem. Price does not travel politely. At structural extremes — exactly where this curriculum teaches you to do business — wicks hunt the obvious liquidation clusters before the real move. A liq price inside ordinary wick range is a donation schedule.

Keeping it irrelevant

• Know the liq price BEFORE you confirm the order. The terminal shows it; read it every time.
• Your stop must sit far inside your liq price. If the stop is wrong, you lose planned risk; the liq should never be reachable.
• Size so the liq sits beyond plausible wick range, not just beyond your hope.

The professional relationship with liquidation: it exists, you know exactly where it is, and your sizing makes it unreachable. Module 4 turns this into hard rules.