1. Watch the Margin Ratio
To avoid liquidation, you need to pay close attention to your Futures Margin Ratio. When your margin ratio reaches 100%, some, if not all, of your positions will be liquidated.
The margin ratio is calculated as maintenance margin divided by margin balance.
Therefore, if your margin balance drops below the maintenance margin rate - the exchange will liquidate your positions.
In case of a price drop, please ensure that you have enough margin balance in your futures account. The higher the margin balance you have, the lower the liquidation price.
You can use the Binance Futures Liquidation price calculator to calculate how increasing your wallet balance will lower the liquidation price.
2. Use the stop-loss function to limit and control possible losses
A Stop-loss order is a conditional order that is executed at a specified price after a given stop price has been reached. Once the stop price is reached, it will buy or sell at the market/limit price depending on your order parameters.
A stop-loss is designed to limit an investor's loss on a position that makes an unfavorable move. For instance, you set up a 20% stop loss from your entry price.
Assume your entry order was executed at $40,000. The stop-loss order will be triggered when the price drops -20% from $40,000.
By setting a stop-loss function, you can exit a losing position earlier and avoid getting liquidated.
3. Avoid accumulating more contracts in a losing position
Let’s consider this scenario. Assume you have a wallet balance of 500 USDT. You entered a long BTCUSDT position worth 1,000 USDT with 20x leverage at $50,000. In this example, your liquidation price will be $25,100.40.
Now assume that BTCUSDT’s price falls 10% to $45,000. At this point, you decided to add on to your losing position and entered another long BTCUSDT position worth 1000 USDT with 20x leverage at $45,000. Adjusting to your newest position, the liquidation price is now $35,857.67.
As shown, adding more contracts to a losing position will increase your liquidation price of the entire position.