What is a Liquidation Price?

A liquidation price is the specific price level at which a leveraged trading position will be automatically closed (liquidated) by the exchange because the position's losses have consumed the available margin. It represents a critical risk management threshold for leveraged traders.

Calculation Factors

Key Variables

• Initial margin
• Position size
• Leverage ratio
• Maintenance margin requirement
• Entry price
• Funding rates (for perpetual contracts)

Risk Management

Prevention Strategies

• Monitor distance to liquidation
• Maintain adequate margin
• Use appropriate leverage
• Set stop losses before liquidation price

Common Mistakes

• Over-leveraging positions
• Ignoring margin requirements
• Not accounting for fees
• Insufficient buffer to liquidation

Related Terms

• Leverage
• Liquidation
• Margin Trading
• Stop Loss