How Does the Liquidation Price Relate to the Collateralization Ratio?

The liquidation price is the specific price point of the underlying collateral asset at which the collateralization ratio falls exactly to the minimum required threshold. If the collateral's market price drops to or below the liquidation price, the position becomes eligible for liquidation.

The liquidation price is inversely related to the collateralization ratio: a higher initial collateralization ratio results in a lower (safer) liquidation price, providing a larger buffer against market drops.