Define ‘Bankruptcy Price’ in the Context of Futures Liquidation.
The bankruptcy price is the price at which a trader's margin balance is exactly zero. If a liquidated position is closed at or beyond this price, the trader's account incurs a negative balance, resulting in a loss for the exchange.
The liquidation process is designed to close the position before the market price reaches the bankruptcy price, but in volatile markets, slippage can cause the execution price to be worse.
Glossar
Bankruptcy
Default ⎊ This state signifies a critical failure where a counterparty's obligations exceed their available collateral, often triggered in options or futures trading when losses cannot be covered.
Bankruptcy Price
Threshold ⎊ This theoretical price point represents the level at which a specific derivative position, often collateralized, becomes sufficiently under-margined to trigger immediate liquidation or default procedures under the governing contract terms.