What is the liquidation price? Many people don't understand it at all!
In contract trading, the "liquidation price" is the price at which the system forcibly closes your position.
This means that as soon as the price drops (or rises) to the liquidation price, the system will directly liquidate you, leaving you with zero funds.
How is the liquidation price calculated?
Liquidation price = Your opening price -/+ a distance of "complete margin loss"
It is strongly related to the following factors:
Factor Description
Leverage multiple The higher the leverage, the closer the liquidation price is to you (the greater the risk)
Opening direction Long position, liquidation price is below; short position, liquidation price is above
Principal amount The more capital, the stronger the ability to withstand volatility
Underlying volatility The greater the volatility, the higher the probability of approaching liquidation
Here's a detailed example:
1: You use 1000U to open a long position in BTC with 10x leverage, assuming the current price of BTC is 60,000U, you bought BTC worth 10,000U
Because it's 10x leverage, your margin is 1000U, usually the platform will retain a little maintenance margin (for example, 0.5%-1%), so as long as BTC drops from 60,000U to about 54,000U, your 1000U will be completely lost, and the system will directly liquidate you.
2: You use 2000U to open a long position with 5x leverage for the same 10,000U position. Although the position is the same, the principal is more, and the leverage is lower. BTC must drop below 52,000U from 60,000U to be liquidated.
In other words: the positions are the same, but the liquidation price has a whole 2000U space difference!
A fatal mistake that many people make: "The liquidation price is still far away, it should be safe," "Let me hold on for a while, it might rebound," "I'll wait until it happens."
The result is: not cutting losses, being continuously liquidated, and ending up with a mess, unable to recover even the principal.
Why can't we focus on the liquidation price? The liquidation price is the "death penalty execution line," not "the maximum loss you can bear." True trading is determined by you, not the system collecting your remains.
Liquidation = loss of control; stop loss = self-control.
The liquidation price is just the result; risk control is the method! Want to stabilize your account? It's never about "holding on," but:
Initial position ratio, intermediate stop-loss mechanism, subsequent position adjustment rhythm!
Got it? All you little investors
