Derivatives · Concept note
Liquidation
The forced closure of a leveraged position after margin falls below the exchange's maintenance requirement.
Definition
Liquidation occurs when losses leave an account unable to meet maintenance margin. The exchange forcibly reduces some or all of the position to protect the contract and insurance fund. A displayed liquidation price is only an estimate and can change with fees, margin tiers, other positions, and cross-margin balances.
Why it matters
Higher leverage leaves less room between entry and liquidation. Stop orders can also fill worse than expected during fast moves or thin liquidity, so the loss limit should sit well before liquidation.
Calculation and example
Simplified price buffer ≈ 1 ÷ leverage. The actual liquidation price includes maintenance margin and fees.
A 10× long loses most of its initial margin after roughly a 10% adverse move. Maintenance margin can trigger liquidation sooner. Opening a 10,000 USDT position with 1,000 USDT of margin therefore does not guarantee that it can withstand a full 10% decline.
What to check when interpreting it
- Set the maximum account loss before looking at the liquidation price.
- Distinguish the loss scope of isolated and cross margin.
- Confirm whether mark price or last traded price triggers liquidation.
Common misconception
A stop-loss does not make liquidation impossible. Gaps, slippage, or system delays can prevent a timely fill.