Liquidation is the venue's risk process
A leveraged crypto position can be forcibly reduced or closed when its collateral no longer satisfies the venue's maintenance requirements. That is liquidation. It is different from your chosen stop-loss order: the platform acts under its risk rules, and the resulting execution can include fees and unfavorable prices. Some products use partial liquidation before closing everything. The exact process depends on the contract, margin mode and account terms.
Kraken's derivatives documentation describes liquidation estimates based on mark price and margin-wallet equity. Those are venue-specific rules, not a universal formula for every crypto platform. An estimate can change with other positions, collateral value, funding and fees. Do not assume that a displayed number is fixed or that an alert provides a guaranteed grace period. Read what your own legal entity and product actually promise.
A simplified margin example
Consider an invented linear long position of $10,000 backed by $1,000 of margin. Ignoring all costs and collateral changes, a 6% adverse move produces a $600 unrealized loss, leaving $400 of equity against that position. If our hypothetical maintenance requirement were $500 at that moment, the position would already be below it. This teaches why liquidation can occur before the entire deposit is lost; it is not a formula for a live liquidation price.
Real requirements can depend on position tiers, current notional, collateral haircuts and other account exposures. A platform may value a non-cash collateral asset at less than its market price. If collateral itself falls while the trade loses money, equity can erode from both directions. A favorable move in one position may not offset the loss elsewhere if contracts use different margin wallets or different valuation rules.
| Adverse move | Price loss | Equity from $1,000 | Versus assumed $500 maintenance |
|---|---|---|---|
| 2% | $200 | $800 | Above requirement |
| 4% | $400 | $600 | Small remaining cushion |
| 6% | $600 | $400 | Below requirement |
Mark price may differ from the last trade
Platforms commonly use an index-derived mark price for risk calculations rather than the latest trade on the local order book. The mark, index and execution price have different jobs. A brief local wick may therefore behave differently from a sustained change in the reference market. Understand which price triggers liquidation and which price your own stop order follows.
A stop set close to an estimated liquidation level leaves little room for fees, changing collateral and execution delay. A stop-market order can slip; a stop-limit order can remain unfilled. Neither automatically overrides the venue's liquidation engine. Review order types and trigger conventions before using them, and allow for gaps, reduced liquidity and a temporary inability to manage the position.
Cross and isolated margin change the risk perimeter
Isolated margin typically assigns collateral to an individual position or defined risk bucket. Cross margin typically shares collateral among positions in a wallet or account. Their precise boundaries vary. Cross margin can use available collateral to support a losing position, but that can also put more of the account at risk. Isolated mode does not protect against every account-wide or collateral event described in the venue's rules.
Map which balances and positions are included in the calculation. Do not assume that coins in another wallet are available automatically, or that withdrawing unused-looking collateral leaves the same liquidation cushion. Transferring additional collateral is an operational action with delays and limits, not a reliable emergency plan. Reducing exposure changes risk differently from merely adding money to maintain the same oversized position.
Review before taking leveraged exposure
Review account statements after a forced close to distinguish trade loss, funding and liquidation charges. Save the applicable rule version and timestamps if investigating an unexpected result. A screenshot of a candle alone may not explain a mark-price or portfolio-equity trigger. This article is general education, not instructions to increase collateral, trade with leverage or recover a loss.
- Read initial and maintenance margin, collateral haircuts, risk tiers and partial or full liquidation rules.
- Identify the mark-price methodology, stop-order trigger price and the current estimated liquidation level.
- Calculate effective leverage across the relevant wallet, including other positions and pending costs.
- Stress adverse price moves, declining collateral, higher funding and unavailable exits together.
- Keep a voluntary risk limit independent of liquidation; forced closure should not be the planned normal exit.
Frequently asked questions
Can liquidation happen before a 1/leverage price move? Yes. Maintenance margin and costs can trigger action earlier; reciprocal leverage is not a complete liquidation formula.
Is the liquidation estimate guaranteed? No. Its assumptions and the account can change, and execution may occur at a different price.
Can a profitable position be affected? Depending on the wallet rules, losses or collateral changes elsewhere can trigger account risk actions. Verify the product's exact perimeter.