Part 2
The implications of leverage and liquidation for perp traders
A second question emerges: What happens when the price does not just slightly change, but moves hard against your position entirely?
That is where leverage and liquidation come in.
Think about putting $1,000 in a stock. If the stock goes down 10%, you lose $100. You can hold on to that stock, pull it out or do whatever you want with that $900 you still have.
Another scenario can materialize when dealing with perps. Instead of putting $1,000 into stock, you put in $100 but use 10x leverage to control that same $1,000. This could play out in one of two ways:
- If the price drops 10%, your entire $100 is gone.
- If the price goes up though, you will profit whatever percentage it went up multiplied by 10x of what you originally put in.
Unlike regular stocks though, the moment your losses eat through the deposit, the exchange closes your position automatically and then you are left with nothing.
In traditional markets, a broker would typically warn you first with a margin call, which gives you time to add funds.
In crypto perpetual futures, there is no warning, and it is programmatic, meaning the system will close you out instantly with no time to add funds.
Additionally, unlike a stock where you own a percent of a company, a perpetual futures contract does not give you any ownership of anything but rather a position you hold that moves with the price of the asset.
It is also important to note that the higher the leverage is, the less room for error you have. For example, if you put $1,000 into a contract with 10x leverage, the price only needs to move 10% for you to lose it all. If you change the leverage to 20x, the price only needs to move 5% for you to get wiped out.
What makes liquidation extremely dangerous is when it takes place on a larger scale with traders across the world hitting their thresholds at the same time. Leveraging can create a chain reaction by having one closure, leading to a few and then leading to thousands, pushing the price down further each time.
In a single 24-hour period in October 2025, after Trump announced a 100% tariff on all Chinese goods, over $19 billion in leveraged positions tied to crypto were forced to close across the market. which cleared more than 1.6 million trader accounts.
Traditional futures require traders to constantly roll over their positions.
Closing the expiring contract, opening a new one, paying additional fees and absorbing price differences are all problems perps take away as there is no expiration.
Today, perpetuals account for more than 70% of all volume on centralized crypto exchanges, with 61.7 trillion in perpetual futures traded in 2025 alone.
Perpetual futures trading volume now exceeds spot volume for most major digital assets, meaning price discovery for bitcoin and Ethereum increasingly happens in perps markets first.
Spot prices often react after, rather than lead. When large positions get liquidated, as they did in October 2025, the underlying networks feel it too.
Perpetual futures are getting more popular day by day and something to keep an eye out for. As of May 29, 2026, the CFTC approved Kalshi as what it calls the first company in American history to allow regulated perpetual futures.
