Liquidation

Liquidation Basics

Liquidation levels are a crucial aspect of crypto leverage trading that every trader needs to understand. When a trader takes a leveraged position, they borrow funds from the exchange to increase their buying power and potential profits.

However, this also increases their risk exposure, as the potential losses are amplified along with the leverage. To mitigate this risk, exchanges set liquidation levels, which are predetermined price levels at which a trader's position will be automatically closed, or liquidated, to cover their losses.

For example, if a trader enters a long position on CANTO with 10x leverage and the liquidation level is set at $0.12, their position will be liquidated if the CANTO price falls below that level. Suppose the CANTO price drops to $0.108. In that case, the trader's position will be liquidated, and they will lose the funds they had invested in the trade, which may even exceed their initial investment due to the use of leverage. Traders need to be aware of liquidation levels and use them to manage their risk effectively.

Partial Liquidations

For example, if only 350 USD worth of tokens is used as collateral to open the position, there will be a price at which the loss amount is very close to the collateral amount.

This is the Liquidation Price and is calculated as the price at which the (collateral - losses - borrow fee) is less than 1% of your position's size. If the token's price crosses this point then the position will be automatically closed.

Due to the borrow fee, your liquidation price will change over time, especially if you use a leverage that is more than 10x and have the position open for more than a few days, so it is important to monitor your liquidation price.

If there is any collateral remaining after deducting losses and fees, then the corresponding amount would be returned to your account.