In leveraged trading, forced liquidation occurs when the maintenance margin ratio falls to or below 100%. Understanding how to calculate liquidation prices and manage risks is crucial for traders.
Calculating Liquidation Price
Single-Currency Margin Mode Formula
Long Position:
Liquidation Price = (Debt + Interest) × (1 + Position Tier Maintenance Margin Rate) × (1 + Taker Fee Rate) / Position Asset
Short Position:
Liquidation Price = Position Asset / [(Debt + Interest) × (1 + Position Tier Maintenance Margin Rate) × (1 + Taker Fee Rate)]
For convenience, traders can use built-in calculators to estimate liquidation prices.
Cross-Currency Margin Mode
In this mode, all assets are converted to USDT as collateral. The system focuses on the maintenance margin ratio:
- Warning Triggered at ≤ 300%
- Forced Liquidation at ≤ 100%
Maintenance Margin Ratio = Equity / (Maintenance Margin + Liquidation Fees)
Note:
- Maintenance Margin = (Position Size + Pending Orders)
- Liquidation Fees = (Position Size + Pending Orders)
Avoiding Forced Liquidation
1. Add Margin
- Isolated Margin: Top up the specific position.
- Cross Margin: Transfer funds to the trading account.
Increasing margin adjusts the liquidation price, reducing risk.
👉 Learn how to optimize margin management
2. Lower Leverage
Reducing leverage increases required margin. If sufficient funds are available, the system allows adjustment.
3. Close Positions Early
- Full Closure: Market orders to exit risky positions swiftly.
Partial Closure:
- Longs: Lowers estimated liquidation price.
- Shorts: Raises estimated liquidation price.
FAQs
Q: How does leverage affect liquidation risk?
A: Higher leverage increases sensitivity to price fluctuations, raising liquidation likelihood.
Q: Can liquidation be reversed once triggered?
A: No, but adding margin before the threshold prevents it.
Q: Is cross-currency margin safer?
A: It diversifies risk but requires monitoring overall account equity.
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Key Takeaways
- Monitor maintenance margin ratios closely.
- Use calculators for precise liquidation estimates.
- Proactively adjust margins or leverage to mitigate risks.
Stay informed and trade safely!