Guide · Risk Management
What Is a Liquidation Price? The Level That Closes Your Position For You
In leveraged trading, there's a specific price where the decision to close a losing position stops being yours to make.
A liquidation price is the specific price at which a leveraged position gets forcibly closed by the exchange or broker, because the trader's remaining margin has fallen below what's required to keep the position open. Unlike a stop-loss, which a trader sets voluntarily and can adjust or cancel, a liquidation price is a mechanical threshold enforced by the platform itself — once price reaches it, the position closes regardless of what the trader wants.
The liquidation price sits at a specific distance from the entry price, and that distance shrinks as leverage increases. A position opened with 2x leverage can typically absorb roughly a 50% adverse move before liquidation; the same position opened with 20x leverage might only be able to absorb around a 5% adverse move — a genuinely different risk profile for the exact same underlying price prediction, purely because of how much borrowed capital is involved.
A position that gets liquidated typically loses the entire margin allocated to it, not just the amount the price actually moved against the trader — this is the specific mechanic that makes high leverage so unforgiving: a liquidation isn't a partial loss capped at the adverse move, it's usually a total loss of the capital put up for that specific position.
Understanding exactly where a liquidation price sits relative to normal, everyday volatility for a given asset — not just relative to a specific price target — is worth calculating before opening any leveraged position, and testing how different leverage levels change that liquidation distance is available on Trade2Spike without the risk of an actual forced closure teaching the lesson instead.