How Crypto Works & How to Avoid Liquidation – Practical Guide for Traders

How Crypto Works & How to Avoid Liquidation

1. Use Conservative Leverage

• Stick to low leverage ratios rather than extreme multiples. This gives more buffer for price swings. CoinMarketCap+3Coinbase+3Giottus+3
• On collateralized loans, choose a low Loan-to-Value (LTV) ratio borrow less against your collateral so you have margin to withstand market declines. News Hub+1

2. Maintain Margin and Collateral Buffers

• Keep extra funds (or collateral) in reserve. If your margin ratio approaches the maintenance margin, adding funds can keep you from getting liquidated. Mudrex+2CoinMarketCap+2
• Use isolated margin where possible. That way, only each individual trade’s collateral is at risk rather than your entire account. Exolix

3. Use Stop-Loss Orders & Automated Risk Tools

• Always set stop-loss orders strategically to exit positions before they hit liquidation levels. Use technical analysis to identify support/resistance zones. Coinbase+1
• Use platform tools / alerts for margin ratio, price notifications, or liquidation risk indicators. Being proactive helps avoid surprises. News Hub+1

4. Diversify Positions and Risk

• Don’t put all your assets or borrowed capital into one position. Spread risk across different assets or trades. CoinMarketCap+1
• Avoid over-trading (making too many trades) and avoid exposure during periods of known high volatility (e.g., major news events). yellow.com+1

Conclusion

Cryptocurrency offers exciting opportunities thanks to its decentralized nature, fast innovation, and potential returns. But it also brings the risk of liquidation, particularly when leverage is involved or market conditions deteriorate rapidly. By understanding how crypto works, staying aware of key thresholds like maintenance margin and liquidation price, using conservative leverage, and employing risk mitigation tools like stop-loss orders and buffering strategies, one can protect assets and reduce the chance of forced liquidation.