What are margin and liquidation? – Bitvavo Help Center

Summary
This article explains the role of margin in margin trading, what happens during a liquidation, and how you can manage your funds to protect your open positions.

What is margin?

Margin is the amount of euros (EUR) you commit when opening a margin position. It acts as a safety buffer to cover potential losses and trading fees.

With margin trading, you can open a larger position than your own funds by using leverage.

Position size = total trade exposure
Margin = your own funds used as collateral

Example (5x leverage):

You open a €1,000 position
You provide €200 as margin out of your own funds
The remaining €800 worth of crypto is effectively borrowed

The effect of leverage:
Higher leverage increases your exposure without requiring more collateral, but it also magnifies risk. With higher leverage, even a small market move against your position can wipe out most or all of your committed margin.

What is liquidation?

If the market moves strongly against your position, your margin may no longer be sufficient to safely support the trade. If your position reaches its liquidation price, Bitvavo will automatically close the position.

For Long positions: Liquidation happens if the asset's price drops too low.
For Short positions: Liquidation happens if the asset's price rises too high.

This automatic process is built to protect you from losing more than the funds you initially committed, while also keeping the trading platform secure.

What is the liquidation price?

The liquidation price is the specific market price at which your position's safety buffer falls to the minimum maintenance level required to keep the position open. You can view the liquidation price for any active trade on your open position details screen in the app.

Fee vs. market loss

When reviewing a liquidation, it is important to distinguish between market losses and fees:

Total loss = market movement loss + fees

Market movement loss: This accounts for the vast majority of a liquidation loss. Because leverage applies to your full position size, market price drops are calculated against the total position value, not just your margin.
Trading and borrowing fees: These include the standard "Opening fee" and accumulated "Borrowing fee" accrued while the position was open.
Liquidation fee ("Closing fee"): An additional 2% fee is charged when a position is liquidated. This 2% fee is calculated on the total position value (including borrowed funds) at the time of liquidation, not on your remaining margin or initial deposit.

How to read figures in the app

The Bitvavo app displays all position balances, profits, losses, and fees in euros (EUR) rather than percentages. Your position value reflects the total current worth of the leveraged position, while your margin shows the cash buffer remaining from your own funds after factoring in unrealized market movement and accumulated fees.

Worked example (5x leverage Long liquidation):

You open a €1,000 position using €200 of your own margin (5x leverage; €800 borrowed).
The asset's price drops by 16%, reducing the total position value to €840.
The position hits its liquidation price and is automatically closed.
Market loss: €160 (€1,000 - €840).
Fees: €1 in standard "Opening fee" and "Borrowing fee", plus a 2% liquidation "Closing fee" of €16.80 (2% of the €840 total position value) = €17.80.
Total loss: €160 (market loss) + €17.80 (fees) = €177.80.
Remaining balance: €22.20 (€200 margin - €177.80 total loss) is returned to your EUR wallet.

Warning: When a liquidation occurs, the borrowed assets are repurchased or sold at the current market price. An additional 2% liquidation fee ("Closing fee") is applied to the full position value (including borrowed funds), and any remaining euro balance from your margin is returned to your wallet.

How to prevent liquidation

You will receive a notification if your position's Health Ratio drops close to the required minimum level, warning you that you are getting closer to your liquidation price. To protect your trade and avoid the 2% liquidation fee, you can take two actions:

Close the position manually: You can choose to manually close your position before the price hits the liquidation level. This limits your losses and prevents the extra 2% liquidation "Closing fee" from being charged.
Add more margin: You can give your trade more room to handle market fluctuations by adding extra euros to your safety buffer.

App

Go to your open position in the app.
Tap "Modify".
Select "Add margin".
Enter the euro amount you wish to add.

What happens to my remaining margin after a liquidation?

When a liquidation occurs, the borrowed assets are repurchased or sold at the current market price. Your margin covers the market loss and fees (including the "Opening fee", "Borrowing fee", and the 2% liquidation "Closing fee" charged on the total position value). Any remaining euro balance from your margin after covering these amounts is returned to your wallet.