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When a Bitcoin-linked leveraged position is liquidated, the exchange reduces or closes the position and applies the resulting loss to the margin or collateral assigned to it. You may lose some or all of that margin, but liquidation does not automatically mean Bitcoin in a separate spot wallet is sold. The exact result—including fees, any remaining balance, and whether other traders can be affected—depends on the exchange, product and margin setup.
What liquidation does—and what it does not necessarily do
A Bitcoin futures or derivatives contract gives you price exposure; it is not the same thing as holding BTC in a spot wallet. When the position no longer meets its maintenance-margin requirement, the venue may reduce or close the contract. Losses are charged against the margin or collateral governed by that product’s rules.
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That does not, by itself, establish that BTC held in a separate spot account will be sold. Whether funds or positions outside the specific contract are in scope depends on the exchange’s account and margin arrangements. Check which wallet backs the position and whether the account uses isolated or cross margin.
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What determines how much you lose?
- The liquidation trigger: The maintenance-margin rule and the price reference used to assess the position determine when action begins. These vary by exchange and contract.
- How the position is closed: A venue may try to reduce exposure in stages, or close some or all of the position. The execution price can differ from the liquidation trigger price.
- Margin mode and wallet scope: Isolated margin generally assigns collateral to a particular position; cross-margin arrangements may draw on a broader eligible balance. Read the venue’s rules for the exact wallet and positions involved.
- Execution price relative to bankruptcy price: A close at a better price may leave margin. A worse execution can create a shortfall that the venue’s liquidation process must handle.
- Fees and further loss mechanisms: Liquidation or clearance fees may reduce remaining collateral. If the normal process cannot resolve a bankrupt position, a venue may use an insurance fund, liquidity providers, auto-deleveraging, unwind or clawbacks, according to its rules.
A displayed liquidation price is therefore not a promise that the position will close at that exact price, nor does it tell you by itself how much collateral will remain.
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How liquidation works at three exchanges
These examples describe the cited exchange documentation, not a universal industry sequence. The applicable product and jurisdiction terms control.
Binance Futures
Binance describes a “Smart Liquidation” process. Once the maintenance-margin condition is reached, relevant open orders are canceled. The system then attempts to reduce the margin deficit with a large immediate-or-cancel order. If the remaining assets can meet maintenance margin after realized losses and the applicable liquidation clearance fee, the process stops. An unfilled remainder can become a bankrupt position that the Futures Insurance Fund takes over to the extent possible. Binance also says the fund may cover a shortfall to the extent possible; if it cannot, auto-deleveraging (ADL) can close bankrupt positions and some opposing non-bankrupt traders’ positions. Binance’s liquidation explanation
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Binance says its Futures Insurance Fund covers the difference between bankruptcy price and liquidation execution price, but it is not a refund mechanism. Binance explicitly says the fund is not an insurance product, does not guarantee users against losses, and traders do not get their losses back from it. Binance’s Futures Insurance Fund documentation
A liquidation clearance fee may be deducted from assets made available to maintain the position. The amount depends on the applicable rate and notional value, and Binance states an exception for a position that is bankrupt following liquidation. There is no single fee rate to apply across all contracts.
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Kraken Derivatives
Kraken calls its process the “Equity Protection Process,” with three stages: liquidation, assignment and unwind. It first attempts an immediate-or-cancel market order with a limit price intended to prevent a negative account balance. Kraken says that if the position closes at a better price than the absolute worst-case bankruptcy price, the trader keeps remaining margin. Kraken’s Equity Protection Process
If the order does not fully fill, Kraken routes remaining contracts to registered liquidity providers that have agreed to take positions in these circumstances. If providers cannot take the remainder, Kraken describes an unwind: contracts between the trader and counterparties are canceled, and any remaining value in the margin account is transferred to counterparties as compensation. Kraken says an unwind in one margin account does not affect other margin accounts.
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For Kraken’s Multi-M wallet, the exchange says a decline in collateral value can bring positions to the liquidation threshold and put both isolated and cross positions in that wallet at risk; Coin-M and Multi-M wallets are margined separately. This is a Kraken-specific description, not a guarantee about other platforms. Kraken’s collateral and wallet information
Coinbase Global Exchange and International Exchange
Coinbase Global Exchange describes partial liquidation when collateral margin (CM) falls below initial margin (IM): it sells small portions until margin reaches a stated safe IM level. If CM falls below close-out margin (CoM), its described waterfall checks for excess CM in other portfolios under the same ultimate beneficial owner, assigns positions to liquidity support providers (LSPs), then uses ADL if LSP capital is insufficient. Coinbase says its insurance fund covers negative equity so opposing traders can realize profit and loss; if that fund is depleted in a large-scale event, opposing-side user funds (clawbacks) cover negative balances. Coinbase Global Exchange liquidation information
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Coinbase International Exchange’s legal rules say LSP availability is contract-specific. Where there is no LSP program, the sequence can move from auto-liquidation directly to ADL, then—if applicable—to insurance-fund and clawback stages. The rules describe the fund covering losses when liquidation closes worse than bankruptcy price, and clawbacks applying if the fund is depleted and accounts being liquidated have negative equity. Check the rules for the applicable contract and jurisdiction. Coinbase International Exchange trading rules
Quick Recap
What to check before opening a leveraged position
- Identify the product and wallet. Confirm whether the position is a futures or derivatives contract, which collateral supports it, and whether separate spot balances are included.
- Read the margin terms. Check the maintenance-margin trigger, price reference, liquidation steps and whether the exchange can cancel open orders or partially reduce the position.
- Confirm the margin mode. Find out what collateral and other positions can be affected under isolated or cross margin, including whether risk is shared within a wallet.
- Check the loss waterfall and fees. Look for the venue’s rules on execution shortfalls, liquidation fees, insurance funds, liquidity providers, ADL, unwind and clawbacks.
- Use the current contract documentation. Procedures, eligible collateral, fees and legal terms can change; the exchange’s terms for your product and jurisdiction are the relevant ones.
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