Liquidation Cascade Simulator - Calculate Portfolio Liquidation Risk
Simulate what happens when multiple correlated positions liquidate in sequence. This free liquidation cascade simulator shows how one liquidation can trigger others, causing a cascade that wipes out your account. Calculate liquidation sequence, total loss from cascade, and remaining capital after cascade.
Multiple positions + high correlation + high leverage = cascade risk. This tool is a reality check — see how liquidations cascade through your portfolio and potentially wipe out your entire account.
Your total trading account capital
Adverse price movement scenario (negative for long positions)
How correlated positions are (0 = independent, 1 = perfectly correlated)
Cascade Analysis Results
Total Loss
$0.00
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See Jungle RebounderHow the Liquidation Cascade Simulator Works
Calculation Methodology
The liquidation cascade simulator estimates what happens when multiple correlated positions liquidate in sequence. It calculates liquidation prices for each position, simulates adverse price movements, determines which positions liquidate first, and shows how each liquidation affects remaining equity and triggers further liquidations.
Key Insight: Liquidation cascades are most dangerous with cross-margin, high correlation, and high leverage. One position liquidating reduces equity, which can push other positions to liquidation. High correlation means positions move together, increasing the chance of simultaneous liquidations. Use isolated margin to prevent cascades.
Learn more about portfolio risk:
Risk management guideLiquidation Cascade Example Scenario
Setup: $10,000 account, 2 positions (each $5,000, 10x leverage, long, $50,000 entry), -10% price move, 0.8 correlation
What this means: With high correlation (0.8) and identical positions, both positions move together. A -10% price move causes both to liquidate simultaneously, resulting in a $1,000 loss (10% of account). With cross-margin, this could trigger further liquidations if other positions exist.
Common Mistakes & Warnings
- ⚠Using cross-margin for high-leverage positions: Cross-margin shares equity across positions. One liquidation reduces equity for all, potentially causing cascades. Use isolated margin for high-risk positions.
- ⚠High correlation between positions: Correlated positions move together. If one is losing, others likely are too. This increases cascade risk. Diversify with low-correlation positions.
- ⚠Insufficient margin buffers: Operating near liquidation thresholds increases cascade risk. Maintain larger margin buffers to prevent cascades.
- ⚠Over-leveraged portfolios: Multiple high-leverage positions increase cascade risk. One liquidation can trigger others. Reduce leverage or use isolated margin.
Liquidation Cascade Examples - Real Scenarios
Try these realistic trading scenarios to understand how cascades work in different situations.
Scenario 1: Low Cascade Risk (Isolated Margin)
Isolated margin positions with low correlation for minimal cascade risk.
What this means: With isolated margin and low correlation, positions are independent. One liquidation doesn't affect the other. Low leverage (5x) provides good buffer. Cascade risk is minimal — even if one liquidates, the other remains safe.
Scenario 2: High Cascade Risk (Cross-Margin)
Cross-margin positions with high correlation creating significant cascade risk.
What this means: With cross-margin and very high correlation (0.9), positions move almost identically. High leverage (20x) provides little buffer. A -10% move causes both to liquidate, and with cross-margin, the cascade can wipe out the entire account. This is extremely dangerous.
Critical Warning: Cross-margin with high correlation and high leverage is a recipe for account wipeout. One adverse move can trigger a cascade that liquidates your entire account. Use isolated margin or reduce leverage.
Liquidation Cascade Simulator - Frequently Asked Questions
When should I use this tool?
Use this tool when you have multiple leveraged positions open simultaneously. Especially important if positions are correlated (same asset, similar assets, or correlated markets), using high leverage, or operating near liquidation thresholds. It shows what happens when one position liquidates and triggers a cascade.
What is a liquidation cascade?
A liquidation cascade occurs when one position liquidates, causing losses that reduce your account equity. This reduction in equity can push other positions closer to liquidation, causing them to liquidate in sequence. Each liquidation further reduces equity, potentially causing more liquidations — a cascading effect that can wipe out your entire account.
How does correlation affect liquidation cascades?
Correlation determines how likely positions are to move together. High correlation (0.8-1.0) means positions move in the same direction — if one is losing, others likely are too. This increases cascade risk. Low correlation (0-0.3) means positions move independently — lower cascade risk. Negative correlation can actually reduce cascade risk.
What causes a liquidation cascade?
Liquidation cascades are caused by: 1) Multiple positions using shared margin (cross-margin), 2) High leverage across positions, 3) Correlated positions moving against you simultaneously, 4) Insufficient margin buffer, 5) Adverse price movements that trigger multiple liquidations. Once started, cascades can be unstoppable.
How is liquidation sequence calculated?
The simulator calculates liquidation price for each position based on leverage, entry price, and margin. It then simulates the price movement scenario and determines which positions liquidate first. After each liquidation, it recalculates remaining equity and checks if other positions are now at liquidation threshold. This continues until no more positions can liquidate.
What's the difference between isolated and cross-margin in cascades?
Isolated margin isolates each position — one liquidation doesn't affect others. Cross-margin shares margin across positions — one liquidation reduces total equity, potentially causing cascades. Cross-margin increases cascade risk but allows more efficient capital use. Use isolated margin to prevent cascades.
How can I prevent liquidation cascades?
Prevent cascades by: 1) Using isolated margin for high-leverage positions, 2) Reducing leverage across positions, 3) Diversifying with low-correlation positions, 4) Maintaining larger margin buffers, 5) Avoiding over-leveraged portfolios, 6) Monitoring correlation between positions. The best prevention is proper risk management before opening positions.
What happens to remaining capital after a cascade?
After a cascade, remaining capital = initial capital - total losses from all liquidated positions. If cascade is severe, remaining capital can be near zero or negative (if using borrowed funds). The simulator shows exactly how much capital remains and what percentage of your account was lost.
Can a cascade liquidate my entire account?
Yes — if all positions are cross-margined and highly correlated, a severe cascade can liquidate your entire account. This is especially dangerous with high leverage and insufficient margin buffers. The simulator shows worst-case scenarios so you can avoid them.
What's a safe correlation level to prevent cascades?
For cascade prevention, aim for correlation below 0.5 between positions. Correlation above 0.7 is dangerous — positions move together, increasing cascade risk. Negative correlation (-0.3 to -0.5) can actually reduce cascade risk by hedging positions. Diversify across uncorrelated assets to minimize cascade risk.
Should I use cross-margin or isolated margin?
Use isolated margin for high-leverage or high-risk positions to prevent cascades. Use cross-margin for lower-risk positions where you want capital efficiency. Never use cross-margin for multiple high-leverage positions — one liquidation can trigger a cascade that wipes out your account.
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