How to calculate the contract liquidation price?

In futures trading, when account equity drops below the maintenance margin, the liquidation price determines at which price open positions are closed to mitigate losses.

Oct 08, 2024 at 10:33 am

How to Calculate the Contract Liquidation Price

In futures trading, liquidation occurs when a trader's account equity falls below a certain threshold, known as the maintenance margin. When this happens, the broker will automatically close out the trader's open positions to recover the losses. The liquidation price is the price at which the positions are closed out.

Here's how to calculate the contract liquidation price:

1. Determine the Maintenance Margin

The maintenance margin is typically a percentage of the total value of the open positions. The exact percentage varies depending on the broker and the underlying asset.

Example: If the maintenance margin is 20% and the total value of the open positions is $100,000, then the maintenance margin would be $20,000.

2. Calculate the Equity

Equity is the difference between the total value of the open positions and the total margin (initial margin + maintenance margin).

Example: If the total value of the open positions is $100,000 and the maintenance margin is $20,000, then the equity would be $80,000.

3. Determine the Liquidation Price

The liquidation price is the price at which the broker will close out the trader's positions to recover the losses. It is calculated using the following formula:

Liquidation Price = (Maintenance Margin / Equity) * Total Value of Open Positions

Example: If the maintenance margin is $20,000, the equity is $80,000, and the total value of the open positions is $100,000, then the liquidation price would be:

Liquidation Price = (20,000 / 80,000) * 100,000 = $25,000

This means that if the price of the underlying asset falls below $25,000, the broker will close out the trader's open positions and liquidate the account.

Disclaimer:info@kdj.com

The information provided is not trading advice. kdj.com does not assume any responsibility for any investments made based on the information provided in this article. Cryptocurrencies are highly volatile and it is highly recommended that you invest with caution after thorough research！

If you believe that the content used on this website infringes your copyright, please contact us immediately (info@kdj.com) and we will delete it promptly.

Fear & Greed Index

Trade Now

Biggest Gainers

ARDR

$0.1469

45.43%

Trade Now
CETUS

$0.1910

32.47%

Trade Now
KEEP

$0.1083

31.12%

Trade Now
EGLD

$18.9340

23.69%

Trade Now
XYO

$0.0133

23.21%

Trade Now
MERL

$0.1065

21.81%

Trade Now

Latest Crypto News

SUI, the Native Token of the Sui Network, Has Surged by Over 43% in Just a Few Days
2025-04-25 12:50:12
Polygon Labs Officially Launches the AggLayer Breakout Program
2025-04-25 12:50:12
As Hedera Builds Strength & Litecoin Potential Rises, BlockDAG’s $0.0025 Price Rollback Sparks Rush
2025-04-25 12:45:13
Binance U.S Integrates the Base Network, Allowing Users to Deposit and Withdraw ETH and USDC
2025-04-25 12:45:13
A New Era for On-Chain Bitcoin
2025-04-25 12:40:12
A major security failure has rocked the Ethereum network.
2025-04-25 12:40:12

Related knowledge

How does Tail Protection reduce the loss of liquidation?

Apr 11,2025 at 01:50am

Introduction to Tail Protection in CryptocurrencyTail Protection is a mechanism designed to mitigate the risks associated with liquidation in cryptocurrency trading. Liquidation occurs when a trader's position is forcibly closed by the exchange due to insufficient margin to cover potential losses. This often happens in leveraged trading, where traders b...

What are the consequences of an imbalance in the long-short ratio?

Apr 13,2025 at 02:50pm

The long-short ratio is a critical metric in the cryptocurrency trading world, reflecting the balance between bullish and bearish sentiments among traders. An imbalance in this ratio can have significant consequences on the market dynamics, affecting everything from price volatility to trading strategies. Understanding these consequences is essential fo...

How to judge the market trend by the position volume?

Apr 11,2025 at 02:29pm

Understanding how to judge the market trend by position volume is crucial for any cryptocurrency trader. Position volume, which refers to the total number of open positions in a particular cryptocurrency, can provide valuable insights into market sentiment and potential price movements. By analyzing this data, traders can make more informed decisions ab...

Why does a perpetual contract have no expiration date?

Apr 09,2025 at 08:43pm

Perpetual contracts, also known as perpetual futures or perpetual swaps, are a type of derivative product that has gained significant popularity in the cryptocurrency market. Unlike traditional futures contracts, which have a fixed expiration date, perpetual contracts do not expire. This unique feature raises the question: why does a perpetual contract ...

Why is the full-position mode riskier than the position-by-position mode?

Apr 13,2025 at 03:42pm

Why is the Full-Position Mode Riskier Than the Position-by-Position Mode? In the world of cryptocurrency trading, the choice between full-position mode and position-by-position mode can significantly impact the risk profile of a trader's portfolio. Understanding the differences between these two modes is crucial for making informed trading decisions. Th...

How is the liquidation price calculated?

Apr 12,2025 at 01:35am

Introduction to Liquidation PriceLiquidation price is a critical concept in the world of cryptocurrency trading, particularly when dealing with leveraged positions. Understanding how this price is calculated is essential for traders to manage their risk effectively. The liquidation price is the point at which a trader's position is forcibly closed by th...