a liquidation happens when a leveraged position’s losses consume the available margin and the venue force-closes it to control further loss. the estimated liquidation price changes with leverage, margin, and position state.
the three parts to remember.
margin is the buffer.
the smaller the buffer relative to the position, the less room price has to move against it.
leverage compresses room.
higher leverage generally moves liquidation closer to the entry price.
watch the number.
check the estimated liquidation price before and after opening the position.
why it matters.
understanding the term helps you recognize what can change the outcome of a trade and which questions to ask before acting.
simple language does not remove market risk, but it makes the decision easier to understand.
educational information only. trading crypto and using leverage can result in loss.
