How is the currency-standard liquidation price of a perpetual contract calculated?

The currency-standard liquidation price is calculated by subtracting the maintenance margin percentage from the current market price of the underlying asset.

Oct 24, 2024 at 11:49 am

How is the Currency-Standard Liquidation Price of a Perpetual Contract Calculated?

A perpetual contract is a futures contract that does not have an expiry date. It is usually used to take a leveraged position on the underlying asset. The liquidation price is the price at which the exchange will liquidate your position if you do not have enough margin to cover your losses.

The currency-standard liquidation price is the price at which the exchange will liquidate your position if the value of the underlying asset moves against you by a certain percentage. This percentage is called the maintenance margin.

Steps on how to calculate currency-standard liquidation price

1. Determine the maintenance margin. This is usually expressed as a percentage, such as 10% or 20%.
2. Calculate the value of your position. This is the number of contracts you are holding multiplied by the current market price of the underlying asset.
3. Calculate the liquidation price. This is the current market price of the underlying asset minus (or plus, if you are short) the maintenance margin.

For example:

Let's say you are holding 10 perpetual contracts on Bitcoin, and the current market price of Bitcoin is $10,000. The maintenance margin is 10%.

Step 1. Determine the maintenance margin: 10%

Step 2. Calculate the value of your position: 10 contracts x $10,000 = $100,000

Step 3. Calculate the liquidation price: $10,000 - (10% x $10,000) = $9,000

This means that if the price of Bitcoin falls to $9,000, the exchange will liquidate your position.

It is important to note that the liquidation price can change as the market price of the underlying asset changes. If the market price moves in your favor, the liquidation price will increase. If the market price moves against you, the liquidation price will decrease.

You can use a liquidation price calculator to quickly and easily calculate the liquidation price for your perpetual contract.