How much does CoinEx's 5x leverage drop to liquidate the position?

CoinEx's 5x leverage requires traders to maintain a Margin Level above 100% to avoid liquidation, which is calculated as the ratio of Equity to Maintenance Margin.

Nov 27, 2024 at 12:33 am

How Much Does CoinEx's 5x Leverage Drop to Liquidate the Position?

Introduction

CoinEx is a cryptocurrency exchange that offers leveraged trading. Leveraged trading allows traders to amplify their profits by borrowing funds from the exchange. However, it also increases the risk of liquidation. Liquidation occurs when the trader's losses exceed the amount of funds they have deposited in their account.

The amount of leverage that a trader can use will determine how much their position can drop before it is liquidated. CoinEx offers leverage of up to 5x for certain trading pairs. This means that a trader can borrow up to 5 times the amount of funds that they have deposited in their account.

Calculating the Liquidation Price

The liquidation price is the price at which a trader's position will be liquidated. It is calculated by dividing the trader's entry price by the leverage that they are using. For example, if a trader has a buy position with an entry price of $10,000 and is using 5x leverage, their liquidation price would be $10,000 / 5 = $2,000.

Steps to Calculate the Liquidation Price

1. Calculate the Maintenance Margin: The Maintenance Margin is the minimum amount of equity you must maintain in your account to avoid liquidation. It is calculated by dividing the Initial Margin by the Leverage.
2. Monitor Your Position's Margin: The Margin Level is the ratio of your Equity to the Maintenance Margin. It indicates how close you are to liquidation. The closer your Margin Level is to 100%, the closer you are to liquidation.
3. Calculate the Liquidation Price: The Liquidation Price is the price at which your position will be liquidated if the Margin Level falls below 100%. It is calculated by multiplying the Entry Price by (1 - (Maintenance Margin / Equity)).

Example

Let's say you have a buy position with an entry price of $10,000 and are using 5x leverage. Your Initial Margin is $2,000 and your Maintenance Margin is $400. Your Margin Level is currently 125%.

If the price of the asset drops to $9,600, your Margin Level will drop to 100%. This means that you are at risk of liquidation. If the price continues to drop, your position will be liquidated at $9,200.

Reducing the Risk of Liquidation

There are a few things that you can do to reduce the risk of liquidation.

• Use a lower leverage: The higher the leverage you use, the greater the risk of liquidation. If you are new to leveraged trading, it is recommended to start with a lower leverage.
• Have a stop-loss order in place: A stop-loss order will automatically sell your position if the price drops to a certain level. This can help to protect you from losses if the market moves against you.
• Monitor your positions closely: It is important to keep an eye on your positions and make sure that you are not at risk of liquidation. If you see that your Margin Level is getting low, you may need to add more funds to your account or reduce your leverage.