What Is the “Liquidation Price” and How Is It Calculated for a Leveraged Futures Position?

The liquidation price is the price at which a leveraged position will be automatically closed by the exchange to prevent the trader's losses from exceeding their margin collateral. It is calculated based on the entry price, leverage, initial margin, and the maintenance margin requirement.

If the market price reaches the liquidation price, the exchange's risk engine takes over to sell the position, usually at a slight loss to the trader.