How to avoid liquidation when trading contracts on OKX?

On OKX, contract liquidation occurs when margin falls below maintenance levels, so managing leverage, using stop-losses, and monitoring mark price can help avoid total loss.

Aug 08, 2025 at 07:36 pm

Understanding Contract Liquidation on OKX

When trading perpetual or futures contracts on OKX, liquidation occurs when a trader’s margin balance falls below the required maintenance margin level. This typically happens due to adverse price movements that deplete the collateral supporting the open position. Once liquidation is triggered, OKX automatically closes the position to prevent further losses, often resulting in the total or partial loss of the trader’s margin. To avoid this, traders must understand how leverage, margin types, and price volatility interact within the platform’s risk management framework.

OKX offers both cross-margin and isolated-margin modes. In cross-margin, the entire account balance acts as collateral for open positions, offering more flexibility but exposing the whole account to risk. In isolated-margin, traders allocate a specific amount of margin to a position, limiting potential losses to that amount. Understanding these modes is crucial, as improper margin mode selection can significantly increase liquidation risk.

Setting Appropriate Leverage

One of the most effective ways to reduce liquidation risk is by using appropriate leverage. While OKX allows leverage as high as 125x on certain contracts, such high levels dramatically increase exposure to price swings. For example, a 1% adverse move at 100x leverage can wipe out nearly the entire margin. Traders should assess their risk tolerance and market conditions before selecting leverage.

To adjust leverage on OKX:

• Navigate to the futures trading interface
• Select the desired contract (e.g., BTC-USD-SWAP)
• Locate the leverage control panel, usually near the order entry section
• Click on the current leverage value and choose a lower setting, such as 10x or 20x
• Confirm the change, ensuring it applies to the correct margin mode

Using lower leverage increases the buffer against price volatility, giving positions more room to withstand temporary adverse movements without triggering liquidation.

Utilizing Stop-Loss and Take-Profit Orders

Setting stop-loss orders is a fundamental risk management tool on OKX. A stop-loss automatically closes a position when the price reaches a predetermined level, limiting losses before they escalate to liquidation. This is especially important in fast-moving markets where manual monitoring may not be sufficient.

To set a stop-loss on OKX:

• Open the order panel for the contract
• Switch to advanced order types (e.g., Stop-Limit or Stop-Market)
• Enter the trigger price at which the stop-loss should activate
• Specify the execution price (for limit orders) or leave it blank (for market orders)
• Set the order size matching the open position
• Click Place Order to confirm

Similarly, take-profit orders help secure gains and reduce emotional trading decisions. By automating exits, traders maintain discipline and avoid holding positions too long, which can lead to reversals and unexpected liquidations.

Monitoring Liquidation Price and Mark Price

OKX displays the estimated liquidation price for each open position, which is critical for risk assessment. This price indicates the market level at which the position will be liquidated based on current margin and fees. Traders should regularly check this value and compare it to the mark price, which is used by OKX to prevent manipulation and determine liquidation triggers.

The mark price is derived from external index prices and funding rates, differing from the last traded price. If the mark price reaches the liquidation threshold, the position is closed regardless of the order book price. Therefore, relying solely on the last traded price can be misleading.

To view these metrics:

• Go to the Positions tab in the futures trading interface
• Locate the open position
• Observe the Liq. Price field
• Compare it with the current Mark Price displayed nearby
• Ensure the difference is sufficient to absorb normal volatility

Maintaining a safe distance between the current mark price and the liquidation price reduces the likelihood of being liquidated during temporary spikes or dips.

Adding Margin to Open Positions

When a position moves against a trader, increasing the allocated margin can prevent liquidation. OKX allows margin adjustment for isolated positions, enabling users to inject additional funds directly into the position’s collateral pool.

To add margin:

• Access the Positions tab
• Find the relevant open position
• Click the Add Margin button (usually represented by a "+" icon)
• Enter the amount of USDT or BTC to add
• Confirm the transaction through the pop-up dialog

This action increases the maintenance margin buffer, effectively lowering the liquidation price. However, this should not be seen as a long-term solution to a losing trade. It is most effective when used strategically during temporary volatility, not as a means to average down on a fundamentally flawed position.

Managing Position Size and Diversification

Opening excessively large positions relative to account size is a common cause of liquidation. Even with moderate leverage, a large position can dominate the account’s risk profile. Traders should follow sound position sizing principles, such as risking no more than 1-2% of total equity per trade.

To calculate position size:

• Determine the maximum acceptable loss in USDT
• Identify the stop-loss distance in price units
• Divide the acceptable loss by the stop-loss distance to get the contract quantity
• Input this value when placing the order

Additionally, diversifying across multiple contracts or using hedging strategies (e.g., long BTC and short ETH) can reduce overall portfolio volatility. OKX supports multi-position management, allowing traders to balance directional exposure and minimize systemic risk.

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Frequently Asked Questions

What happens after a position is liquidated on OKX?

After liquidation, OKX closes the position at the prevailing market price or via an auction mechanism. The remaining margin, if any, is returned to the account, minus fees and potential insurance fund deductions. The trader loses the margin allocated to that position, and the loss is reflected in the P&L history.

Can I receive a liquidation warning on OKX?

Yes. OKX provides real-time margin ratio alerts and on-screen notifications when a position approaches the liquidation threshold. Users can also enable push and email alerts in the settings under Notifications > Risk Alerts to receive warnings before liquidation occurs.

Does OKX charge a fee for liquidation?

OKX does not charge an additional fee for liquidation. However, the position is closed at a price that may include a liquidation penalty, and in cases where the insurance fund covers the loss, the remaining margin might be reduced further. This is not a direct fee but a consequence of the risk engine’s design.

How does funding rate affect liquidation risk?

Funding rates do not directly trigger liquidation, but they impact the cost of holding a position. High funding payments can gradually erode margin over time, especially in long-term trades. Traders holding positions through multiple funding intervals should account for these costs to avoid margin depletion.