How Is the Liquidation Price for a Perpetual Contract Position Determined?
The liquidation price is determined by the point at which the equity of the position equals the maintenance margin requirement. It is calculated based on the entry price, position size, leverage, initial margin, and the maintenance margin rate set by the exchange.
The higher the leverage, the closer the liquidation price is to the entry price.
Glossar
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Long Position
Definition ⎊ A long position represents the purchase of a financial instrument, such as a cryptocurrency, stock, or derivative contract, with the expectation that its price will increase.
Short Position
Definition ⎊ A short position represents the sale of a financial instrument, such as a cryptocurrency, stock, or derivative contract, that the seller does not own, with the expectation that its price will decrease.
Perpetual Contract Position
Position ⎊ Perpetual contracts, a cornerstone of modern cryptocurrency derivatives markets, represent an agreement to buy or sell an asset at a predetermined future time and price, distinguished by the absence of an expiration date.
Funding Rate
Cost ⎊ The Funding Rate is the periodic payment exchanged between long and short positions in perpetual futures contracts, designed to anchor the contract price to the underlying spot index price.
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.