What is Liquidation?
To keep the positions open, traders are required to hold a percentage of the value of their position, i.e., the “Maintenance Margin Percentage”. If a trader fails to fulfill the maintenance requirement, his/her position will be taken over by the liquidation engine and gets liquidated, and the maintenance margin will be lost.
Traders can check the “Maintenance Margin Percentage” at Futures Specifications.
How to calculate the liquidation price on KuCoin Futures?
Suppose the BTC price is $10,000; you believe that the price will rise and therefore invested $500 with 10x leverage. Now you have a position with a nominal value of $5,000 (= $500 * 10).
- When the BTC price rises, your profit will be amplified tenfold.
- But of course, when the price drops, your losses will also be magnified tenfold.
However, if the BTC price drops from $10,000 to $9,000, namely, the price decreases by 10%, and you’ll be in trouble.
Although you’ve only invested $500, the leverage is 10x; therefore, the price changes will be based on $5,000. Once the price drops by 10%, $5,000 will decrease to $4,500 ($5,000 * 0.9).
When Margin = Initial margin + Realized PNL + Unrealized PNL < Maintenance margin, your position will be liquidated. That is to say, you will lose $500, which is the initial margin as well as your total investment.
- It is suggested to control your leverage within 5x to better manage the position risk. When the price swings by about 10%, 10x leverage will raise the risk of liquidation.
- Traders shall take notice of the price gap of the Liquidation price and the Mark Price. If the Mark price reaches the Liquidation price, the position will be taken over by the liquidation engine and get liquidated.