liquidation
Liquidation Examples
Example: Bitcoin SHORT (1x)
Setup:
- Entry price: $50,000
- Deposit: 100 USDC
- Position value: 100 USDC (1x)
- Liquidation price: $100,000 (Price doubles)
Day 1: Price stays at $50,000
- P&L: 0 USDC ✓
Day 5: Price goes up to $75,000
- Loss: 100 × ($75,000-$50,000)/$50,000 = 50 USDC
- Remaining: 50 USDC
- Warning: Price is moving against you
- Distance: $75,000 to $100,000 = $25,000 (33% more up)
Day 10: Price goes up to $90,000
- Loss: 100 × ($90,000-$50,000)/$50,000 = 80 USDC
- Remaining: 20 USDC
- Critical: Very close to liquidation
- ⚠️ ACTION NEEDED: Close position to save remaining funds!
Day 15: Price reaches $100,000
- LIQUIDATED AUTOMATICALLY
- Entire 100 USDC deposit: LOST
- Cannot recover any remaining amount
Strategies to Avoid Liquidation
1. Monitor Positions Constantly
Especially with volatile assets:
- Check position multiple times daily
- Set price alerts on contract
- Close if getting close to liquidation
- Don't sleep through a liquidation
2. Set Stop Losses
Don't wait for liquidation. Close early.
Trade plan BEFORE opening:
- Entry price: $50,000
- Profit target: $40,000 (close here for profit)
- Stop loss: $60,000 (close here to limit loss)
- Liquidation: $100,000 (don't wait!)
If price rises to $60,000:
- Close position immediately
- Save remaining capital
- Avoid bigger losses
3. Position Sizing
Only risk a small percentage per trade
Bad: All-in trading
- Have 1000 USDC
- Put entire 1000 USDC in one trade
- Get liquidated, lose everything
Good: Risk management
- Have 1000 USDC
- Use 50-100 USDC per trade
- Can afford 5-10 losing trades
- Still have capital to recover
What Happens When You're Liquidated
Liquidation Process
- Price reaches liquidation level
- Smart contract detects this
- Your position is closed automatically (you can't stop it)
- Your entire deposit is lost (or remaining balance, whichever is less)
- Position disappears from your account
- Funds are gone (cannot recover)
What You Keep
After liquidation:
- ✓ Your remaining wallet balance (if any leftover)
- ✓ Your other open positions (unaffected)
What you lose:
- ✗ Liquidated position deposit (100%)
- ✗ All potential future profits from that position
Important: Cannot Be Recovered
Liquidation is permanent. Dexetera:
- ✗ Cannot reverse liquidation
- ✗ Cannot refund liquidated amount
- ✗ Cannot appeal or dispute (smart contract is final)
Only prevention: Close position before liquidation happens.
Risk Warnings
Short Selling Risks
When you open a SHORT position, you lose money if the price goes UP. Since asset prices can theoretically go up infinitely, you must be careful.
Price action timing:
If price doubles (increases 100%):
- Your 1x SHORT position loses 100% of its value.
- You are liquidated.
Emotional Trading
When you're losing:
- Don't open more positions "revenge trading"
- Don't trade emotionally
Close your position, step away, review what went wrong.
Q: Will Dexetera warn me before liquidation? A: Yes. "At Risk" warning appears when you're close. But the warning doesn't stop liquidation.
Q: Can I deposit more money to avoid liquidation? A: Depends on Dexetera features. Check documentation for current capabilities.
Q: What if price liquidates me and then recovers? A: Doesn't matter. Position is closed. You're out. You'd have to re-open (paying fees again).
Q: Is liquidation automatic or manual? A: Automatic. Smart contract does it. You can't stop it.
Q: Do I owe money if liquidated? A: No. You only lose your deposit. You never owe anything (blockchain design).
Remember: Liquidation usually happens on SHORT positions when price doubles. Manage your risk carefully.