When preparing to trade margin, we need to consider several different factors that can affect the effectiveness of our investment. Today, however, we would like to focus on the term Liquidation price, which can effectively help you understand how to close your positions. Liquidation price - what is it? In simple terms, when your portfolio falls below the required margin/deposit to maintain a position, the risk management system will close the position. In this situation we consider the liquidation price to be the price at which the maintenance margin cannot effectively cover the position. Any margin you still have is gone. So we can say that the liquidation price is the result of some estimation as to when your account will be liquidated under certain market conditions. All changes in deposit requirements, withdrawals, trades and sales will affect the liquidation price. For example, an interest charge of 0.01% in 24 hours will affect your balance and change the liquidation price. Liquidation Price - Example As soon as the available balance falls below 0 due to changes in the market price of a derivatives position, all open orders for derivatives positions in that settlement currency are cancelled. If you trade BTC/USD and the price is very close to the liquidation price, all open BTC/USD orders will be cancelled. This is because the BTC balance should fall below 0. We calculate the available balance as: available balance = market balance - (hold + initial margin + applicable margin) Available balance is the amount that can be used for withdrawals, balance transfers and opening new orders, market balance is the balance plus/minus realized profit and loss (PnL), hold refers to the amount of funds needed to place a limit order - funds are released when the order is filled or cancelled, Initial margin is the amount of funds needed to take a position. How do I protect myself from liquidating my position? As a general rule, the best way to protect your funds from liquidation is to set a stop loss on your position. This will effectively help you exit before the market reaches liquidation value. In addition, you can always reduce the amount of leverage you are using. The last way is to increase the value of your portfolio or reduce the value of your position. This will help you avoid liquidation and loss of funds. All these solutions can be used on margin trading platforms without any problems. An interesting solution for getting a feel for margin trading conditions is to use the unleveraged trading option on Geco.one. The easy and pleasant UI helps traders get familiar with this specific type of trading. Tags bitcoin btc geco.one liquidation price margin trading
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