I have received many questions from new Futures traders about liquidation, especially when the market is volatile. Today, I will explain in detail what liquidation price is and why it is so important.

First, it’s essential to understand: liquidation occurs when your margin balance falls below the maintenance margin level. This is a safety mechanism used by exchanges to protect both traders and the system. When you trade with leverage, the risk increases, so understanding what the liquidation price is will help you better manage your positions.

Let me give a specific example to make it easier to visualize. Suppose you buy $10,000 worth of Bitcoin when the price is $100,000, but you only use $1,000 of initial margin with 10x leverage. The maintenance margin level is $100. At this point, you need to be aware of two important prices.

The first is the liquidation price. This is the price at which the system will start closing your position. The liquidation price depends on the leverage you use, the maintenance margin ratio, the current price, and the remaining balance in your account. If the market moves against you, the liquidation price is the final boundary before you get liquidated.

The second is the bankruptcy price. This is the price at which your loss equals your entire initial margin. In other words, it’s the point where your margin balance hits zero. The bankruptcy price is usually lower than the liquidation price.

Think of these two prices as risk prevention levels. The liquidation price is the first line of defense, cutting off to minimize losses. If the situation worsens, the bankruptcy price is the last line, where your assets are completely exhausted.

Another important point I want to mention: when you get liquidated, the exchange will control the remaining position. If liquidation occurs at a price higher than the bankruptcy price, the remaining funds will be transferred to the insurance fund. But if liquidation happens at a price lower than the bankruptcy price, the loss exceeds your initial margin, and the insurance fund will cover that shortfall.

To avoid liquidation, I recommend closely monitoring your margin ratio, using leverage responsibly, not being overly greedy with losing positions, and definitely using stop-loss orders. Understanding what the liquidation price is will help you make more informed trading decisions.

Finally, remember that Futures trading carries high risks. Cryptocurrency prices are highly volatile, and you could lose your entire margin or even go negative if you don’t manage risks properly. Before trading, carefully assess your skills and goals.