How Is the “Liquidation Price” Determined for a Leveraged Crypto Position?
The liquidation price is the point at which a leveraged position will be automatically closed by the exchange to prevent the trader's losses from exceeding the initial margin and maintenance margin. It is calculated based on the entry price, leverage level, initial margin, and maintenance margin percentage.
The closer the market price gets to the liquidation price, the higher the risk of forced closure.
Glossar
Leveraged Position
Position ⎊ A leveraged position, within cryptocurrency derivatives, options trading, and broader financial derivatives, represents an exposure exceeding the initial capital outlay, amplified through instruments like perpetual futures contracts, leveraged tokens, or options.
Liquidation Price
Trigger ⎊ The Liquidation Price is the specific market price level at which a trader's margin equity falls to the maintenance margin threshold, causing the exchange or protocol to automatically close the leveraged position to prevent the account balance from falling into negative territory.