What Is a ‘Liquidation Price’ and How Does It Relate to the Stop-Loss?
The liquidation price is the point at which a futures exchange will automatically close a leveraged position to prevent the account balance from falling below zero. This occurs when the margin balance drops below the maintenance margin requirement.
A stop-loss should always be placed before the liquidation price to ensure the trader exits the position on their own terms, preserving a portion of the margin, rather than being forcibly liquidated.
