What to do when close to liquidation

Liquidation, or 'the liquidation level', is the price at which the broker forcibly closes a trader's leveraged position when their margin balance falls below the required threshold, in order to prevent further losses.

But if you're approaching liquidation, all is not lost.

When margin health turns red, most traders do one of two things: freeze, or add margin without thinking. Neither is a strategy. You have four main options before liquidation, each with a different trade-off. Knowing which one fits your situation is the difference between a managed loss and an unnecessary one.

Before you're ever near liquidation, the right time to plan your exit is when you open the trade. Check out our risk management for futures guide to learn how to build that into your process.

The closer you are to your maximum allowable leverage, the closer your liquidation price sits to your entry. In the EU and other jurisdictions outside the US, you choose leverage via a slider at order entry (up to 10x in the EU, up to 100x on BTC and ETH in ROW), so liquidation distance is largely a pre-trade decision.

In the US, leverage is built into the contract structure based on the collateral you post. Posting more collateral against a position can reduce effective leverage and push liquidation further away. Either way, the four options below apply once you're already close to liquidation.

When your position is approaching its liquidation price, you have four choices:

1. Add margin to push the liquidation price further away.
2. Partially close the position to reduce your exposure.
3. Set a stop loss above your liquidation price to have a known exit.
4. Close now and accept the controlled loss.

Each option suits a different situation. The sections below cover when to use each one.

Adding margin transfers additional collateral to your position, pushing your liquidation price further from the current market price and giving you more room before the exchange steps in.

This makes sense when your original trade thesis is still intact. If the reason you opened the position hasn't changed and you believe the move against you is temporary, adding margin can give the trade time to play out.

This is particularly relevant for US traders, where collateral posted against the position is the primary lever for managing liquidation distance once a trade is open. EU and ROW traders selected leverage via a slider at order entry, so adding margin is an after-the-fact adjustment to that initial choice.

To calculate exactly how much margin you'd need to shift your liquidation price by a meaningful amount, see how to calculate your liquidation price.

What it doesn't do is fix a bad trade. If the thesis has changed, or you're adding margin purely to avoid taking the loss, that's a different situation.

A common pattern in losing accounts is repeatedly adding margin to a deteriorating position, delaying the inevitable while increasing total capital at risk. Adding to a losing trade without a clear thesis change is how a manageable loss becomes an account-threatening one.

For context on how margin mode affects your liquidation exposure, read our cross margin vs isolated margin guide.

Partially closing means selling a portion of your position at the current price. It reduces your position size, which lowers your margin requirement and moves your liquidation price further away, without requiring you to add new capital.

You lock in a partial loss on the portion you close, but you keep some exposure. If your conviction on the trade has weakened but you haven't fully changed your view, partial closure can be a useful middle ground. You reduce the risk of a forced exit while keeping the possibility of recovering some of the loss on the remaining position.

For a full breakdown of how partial and full liquidations differ on Kraken, see our partial vs full liquidation guide.

A stop loss placed above your liquidation price allows you to exit a trade at a known price before the liquidation engine takes over. When liquidation happens, the exchange closes your position at market. The execution price may be worse than your liquidation level, and you pay a liquidation fee on top of the loss.

On Kraken, the full liquidation fee for multi-collateral positions is 0.5% of the position size for BTC perp contracts, calculated as 50% of the minimum maintenance margin percentage, which is 1% for BTC Perp. A stop loss above liquidation avoids that fee entirely and gives you a predictable exit price.

For instructions on setting a stop loss on Kraken Pro, see our full article how to set conditional orders: stop loss and take profit.

Sometimes the right call is to close the position now and take the loss at the current price. A manual close is almost always cheaper than liquidation: you avoid the liquidation fee, you control the execution price, and you remove the uncertainty of what happens if price keeps moving against you before the engine closes you out.

Waiting to be liquidated isn't a neutral choice. It has a defined extra cost and a worse-than-market execution price in many cases. Closing manually keeps more capital in your account for the next trade.

Two patterns consistently turn manageable losses into much larger ones.

1. The first is adding margin repeatedly to a losing position without any change in the underlying thesis. Each addition delays the outcome and increases the total capital at risk. A common result is that the position eventually liquidates anyway, with more money tied up in it.
2. The second is moving a stop loss further away to "give the trade more room." When price is approaching your stop, that's the stop doing its job. Moving it is choosing to take a larger loss if the trade continues going wrong.

Neither of these are strategies, they're reactions to not wanting to take a loss, which is an emotional response and best avoided.

Perpetual futures are derivative contracts that allow you to speculate on the price movement of assets such as BTC, SOL and ETH, without needing to own the actual cryptocurrencies.

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