Can you explain the formula used to calculate the liquidation price in cryptocurrency trading?

1 answers

• Hays PetersonFeb 15, 2024 · a year ago
  The liquidation price formula used in cryptocurrency trading can vary depending on the exchange and the specific trading pair. However, a common formula takes into account the initial margin, leverage ratio, and the current market price. For example, if you have opened a long position with 10x leverage and the initial margin is 10%, the liquidation price would be the price at which your position would be automatically closed if the market moves against you. To calculate it, you would divide your initial margin by the leverage ratio. In this case, it would be 10% divided by 10, which equals 1%. So, if the market price drops by 1%, your position would be liquidated. It's important to understand the liquidation price as it helps traders manage their risk and avoid potential losses.
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