Liquidation Price

The liquidation price is the specific price level at which a leveraged position will be automatically closed by the exchange's liquidation engine. It is calculated based on the entry price, the leverage used, and the amount of collateral backing the position.

As the market price approaches the liquidation price, the risk of losing the entire collateral increases. Traders can often see their liquidation price on the exchange interface, allowing them to monitor their risk.

If the mark price hits the liquidation price, the position is liquidated. Knowing the liquidation price is essential for managing risk and setting stop-loss orders.

It is the most critical price point for a leveraged trader to understand, as it represents the point of total loss for that specific trade.