Overleveraged describes a position or account whose exposure is excessive relative to available capital and its capacity to absorb adverse moves. It is a risk assessment, not a universally defined leverage number. A venue allowing a leverage setting does not mean that setting is suitable for every account.
Why the buffer can disappear
Leverage makes a given price move large relative to the capital supporting the position. For a hypothetical linear position with 10,000 USDT of entry notional and 500 USDT of supporting equity, a 2% adverse price move creates a 200 USDT loss before fees and funding: 40% of that starting equity.
This is not a liquidation-price calculation. Maintenance requirements, mark prices, collateral valuation and margin mode determine the actual trigger. Liquidation can occur before the supporting equity reaches zero.
Look beyond the leverage selector
Exposure can become excessive without opening another trade. Losses reduce equity, volatile collateral may lose value, and correlated positions can decline together. Effective leverage can therefore rise even when the selected leverage stays unchanged.
Reducing position size lowers market exposure. Adding eligible collateral may increase the margin buffer but commits more capital to possible loss. Stop orders also face execution limits. None of these actions makes an unsuitable position automatically safe.