Liquidation: An automatic closing of the position due to a significant Margin loss.
Trading cryptocurrency Derivatives with high Leverage can be very profitable. On BTCMEX you can trade BTC/USD Perpetual Contracts with up to 100x Leverage. It allows traders to open positions and place orders that are significantly larger than their Initial Margin.
But what happens if the trader experiences loss? When the trader loses nearly all of his Initial Margin (the collateral used to open a position) his position is automatically closed. This process is called Liquidation. The trader whose position is liquidated loses his entire Margin (as he will see his position as being closed at Bankruptcy Price).
For Long positions, the Liquidation Price is always lower than the Entry Price, for Short positions, the Liquidation Price is always higher than the position’s Entry Price.
The Liquidation Price of an open position can be checked in the Open Position details on BTCMEX.
Liquidation of a Long position: Example
For example, if a trader opens a Long position buying 50 BTC/USD contracts with 50x Leverage, and the Entry Price of the position is USD 8,125, the estimated Liquidation Price is USD 8,006. Once the Mark Price touches USD 8,006, this position will be automatically Liquidated and closed by the Last Traded Price.
Liquidation of a Short position: Example
If a trader opens a Short position buying 50 BTC/USD contracts with 50x Leverage, and the Entry Price of the position is USD 8,125, the estimated Liquidation Price is USD 8,248.5. Once the Mark Price touches USD 8,248.5 this position will be automatically Liquidated and closed by the Last Traded Price.
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