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.
Glossar
Leveraged Futures
Concept ⎊ Leveraged Futures are derivative contracts that permit a trader to control a large notional position in an underlying cryptocurrency asset with a relatively small amount of initial capital, known as margin.
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.
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.