Introduction
Liquidation is one of the most critical risks in copy trading, especially when trading leveraged perpetual contracts. On Flipster, liquidations are handled independently and transparently for each Copy Trading Wallet to ensure fairness between Master Traders and Copiers.
With the introduction of Fixed Multiplier Mode, liquidation risk can be significantly amplified, making it even more important to understand how liquidations occur and how to manage risk effectively.
This article explains how liquidations work in copy trading, what happens during a liquidation event, and how both Master Traders and Copiers can manage liquidation risk.
What Is Liquidation?
Liquidation occurs when a position’s losses exceed the available margin in a trading wallet, causing the position to be force-closed by the system to prevent further losses.
In copy trading:
- Liquidation is based on the individual Copy Trading Wallet balance
- It does not depend on the Master Trader’s personal wallet balance
- Each Copier bears risk proportionate to their allocated margin
Important:
In Fixed Multiplier Mode, position sizes are increased based on the selected multiplier, which can cause positions to reach liquidation thresholds faster.
How Liquidations Work in Copy Trading
1. Position-Level Evaluation
Each copied position is evaluated independently based on:
- Entry price
- Position size (including multiplier-adjusted size)
- Leverage used (subject to category limits)
- Available margin in the Copy Trading Wallet
- Maintenance margin requirements
If the margin falls below the required threshold, the position becomes eligible for liquidation.
2. Copier vs. Master Trader Liquidation
Liquidation does not always happen simultaneously for the Master Trader and Copiers.
| Scenario | What Happens |
| Copier has less margin | Copier may be liquidated earlier |
| Copier adds margin | Copier may avoid liquidation |
| Master Trader adds margin | Does not affect Copier wallets |
| Copier uses higher multiplier | Higher liquidation risk |
| Copier uses lower allocation | Higher liquidation risk |
Each Copy Trading Wallet is assessed independently.
3. During a Liquidation Event
When liquidation occurs:
- The affected position is force-closed at the best available market price
- Remaining margin (if any) stays in the Copy Trading Wallet
- Losses are capped at the wallet’s available margin
- The Master Trader’s strategy continues for other Copiers
Why Copiers May Be Liquidated Earlier
Copiers may experience liquidation earlier than the Master Trader due to:
- Smaller allocated margin
- Higher proportional exposure
- Use of Fixed Multiplier Mode (amplified position size)
- Funding fee accumulation
- Trading fees (maker/taker) reducing available margin
- Partial fills or execution price differences
- Leverage caps applied differently due to category limits
These factors can shift the liquidation price and timing.
Does Liquidation End Copy Trading?
- No. Liquidation of one position does not automatically stop copy trading.
- Copy trading continues unless:
- The Copy Trading Wallet balance becomes insufficient
- You manually stop copying the Master Trader
- System risk controls are triggered (e.g., low balance, repeated failures)
However, repeated liquidations may significantly reduce your available margin and ability to continue copying effectively.
Impact on Profit Sharing
- Liquidated positions do not generate profit
- No profit share is charged on losses
- Profit sharing applies only to net profitable periods
- Losses reduce the base used for future profit calculations
Risk Management Tips for Copiers
To reduce liquidation risk:
- Allocate sufficient margin when copying
- Use lower multipliers, especially for volatile traders
- Avoid copying overly aggressive, high-leverage strategies
- Monitor Maximum Drawdown (MDD) and leverage usage
- Diversify across multiple Master Traders
- Adjust or stop copying if the trader’s risk profile changes
Best Practices for Master Traders
Master Traders can help reduce liquidation risk by:
- Using disciplined leverage levels
- Avoiding overexposure in volatile markets
- Managing position sizing responsibly
- Maintaining consistent risk controls
Strong risk management benefits both the Master Trader and Copiers.
Key Takeaways
- Liquidations are handled per Copy Trading Wallet
- Copiers and Master Traders are liquidated independently
- Fixed Multiplier Mode increases liquidation risk by amplifying exposure
- Smaller margins and higher exposure lead to earlier liquidation
- Liquidation does not automatically stop copy trading
- Proper margin allocation and risk management are essential
Understanding how liquidations are handled in Copy Trading helps you manage risk realistically and make informed decisions when copying trades on Flipster.
Risk Warning:
Trading in cryptocurrency involves risk and potential losses. Before trading, please make your investment decisions cautiously by considering your investment objectives, experience, and risk tolerance. You are solely responsible for your investment decisions, and Flipster is not liable for any losses you may incur. Derivatives trading, in particular, is subject to high market risk and price volatility. Please obtain independent advice where appropriate. This information should not be construed as financial or investment advice.
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