The liquidation price is the price at which the maintenance margin is no longer sufficient to cover your position and the whatever margin you have left is lost. The position is liquidated when the mark price, which is used to value contract positions, reaches the liquidation price.
The liquidation price depends on the entry price, maintenance margin and leverage used.
- Using a higher leverage brings the liquidation price closer to the entry price for a fixed position size.
- The more funds there are in the trading account and the better your entry, the easier it is to sustain the maintenance margin.
- Reduce the size of your position to move the liquidation price further away from your entry price.
The liquidation price of your position is displayed in the positions panel.
As soon as your available balance is due to drop below 0 due to changes in the mark price of a derivatives position, all open orders for spot and derivatives positions for that settlement currency are cancelled.
For instance, if you are trading BTC-PERP and the price is very close to the liquidation price, all open orders for BTC-PERP will be cancelled since your BTC balance is due to drop below 0.
The available balance is calculated as:
available balance = market balance - (hold + initial margin + maintenance margin)
- available balance is the amount that can be used for withdrawals, balance transfers and opening new orders,
- market balance is your balance plus or minus your realised profit and loss (PnL),
- hold refers to the amount of funds needed to submit a limit order, and are released once an order gets filled or cancelled,
- initial margin is the amount of funds needed to enter a position, calculated as:
- initial margin= (minimal initial margin percentage + position margin multiplier * maximum absolute position) * absolute value of open orders that result in position increase
- maintenance margin is the amount of funds needed to keep a position open, calculated as:
- maintenance margin = (minimal maintenance margin percentage + position margin multiplier * maximum absolute position) * absolute position value
To prevent being liquidated, you can use a stop limit order to exit the trade before the market reaches the liquidation price. You can also use less leverage to decrease the chances of your trade hitting the liquidation price or reduce the size of your position.