How Does the 'Liquidation Price' Change with Varying Leverage Levels? ⎊ Path

How Does the ‘Liquidation Price’ Change with Varying Leverage Levels?

The liquidation price is the price at which a position's losses fully deplete the initial margin and reach the maintenance margin level. Higher leverage means a smaller margin is used to control a larger position.

Consequently, the liquidation price is much closer to the entry price with high leverage. Lower leverage, conversely, provides a wider buffer, pushing the liquidation price further away from the entry price.

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Glossar

Liquidation Price

Valuation ⎊ determines the theoretical price of the derivative contract, which directly influences the required margin and the potential payoff structure.