Liquidation Price — Trading Wiki

What Liquidation Price means

The exact price at which your leveraged position's losses consume your margin, triggering automatic closure by the exchange. Higher leverage = closer liquidation price.

In depth

The liquidation price is the specific price level at which a leveraged trading position will be automatically closed by the exchange or broker because the trader's margin (collateral) is no longer sufficient to cover the unrealized losses on the position. Understanding how to calculate and manage your liquidation price is arguably the single most important risk management skill for any trader using leverage. For a long position, the liquidation price is below the entry price; for a short position, it is above the entry price. The distance between your entry price and liquidation price is inversely proportional to your leverage.

At 2x leverage, the liquidation price is approximately 50% below your entry (for longs). At 10x, it's approximately 10% below. At 100x, just 1% below. This mathematical relationship makes high-leverage positions extremely fragile — even normal market volatility can trigger liquidation. The exact liquidation price calculation varies by exchange and includes factors beyond simple leverage: maintenance margin requirements, funding rates for perpetual contracts, and whether the exchange uses mark price (an average across multiple exchanges) or last traded price for liquidation calculations.

Mark price liquidation is designed to prevent manipulation-induced liquidations caused by wicks on a single exchange. Cross-margin and isolated margin modes significantly affect liquidation dynamics. In isolated margin mode, only the margin allocated to a specific position is at risk — if that position is liquidated, the rest of your account is unaffected. In cross-margin mode, your entire account balance serves as collateral for all positions, meaning a losing position can consume the profits from winning positions before being liquidated.

Key points

• Higher leverage brings the liquidation price closer to entry
• Isolated margin protects rest of account from single-trade liquidation
• Mark price vs last price affects when liquidation triggers

Practical tip

Always use isolated margin mode for individual trades so one bad trade can't wipe your entire account. Calculate your liquidation price BEFORE entering the trade, and make sure your stop loss is comfortably above (for longs) or below (for shorts) the liquidation level.

Why it matters when you are learning

Knowing your exact liquidation price before entering a trade is non-negotiable. If you can't calculate it, you're gambling — not trading.

Practising Liquidation Price on the simulator

Reading about Liquidation Price and using it are different skills. Try it once in the simulator on an instrument you already follow, write down beforehand what you expect to happen, and check the journal a day later to see whether it played out that way. Educational simulation only — not financial advice.