## What Is the Liquidation Price in Leveraged Trading? The Cornerstone of Risk Management

One of the most frequently asked questions when opening a leveraged position is **"What is the liquidation price?"** Not knowing this price level can lead to sudden losses of your capital. The liquidation price indicates the threshold at which your position will be automatically closed. When this point is reached, everything remaining as collateral is liquidated by the exchange.

### When Does Your Position Get Closed?

When trading with leverage, you can open much larger positions with the invested capital. However, this potential for profit also comes with the risk of rapid losses. The concept of **liquid margin** comes into play here — it is the minimum collateral required for your position to remain open. If this level is fallen below, the system automatically closes your position.

### How Does the Liquidation Price Work in a Bitcoin Long Position?

Suppose you are bullish on Bitcoin with 10x leverage:

- Entry point: 20,000 USD
- Invested capital: 1,000 USD
- Opened position size: 10,000 USD (thanks to leverage)

Here, price movements have a significant impact on collateral. If the price drops to 18,000 USD, it results in a 10% negative movement. Due to leverage, this 10% loss equals a damage of the entire 1,000 USD collateral. At this point, the **liquidation price is reached at 18,000 USD**, and your position is closed. Your entire initial investment is lost.

### How the Liquidation Price Works in a Short Position Reverses

When you take a short position, the directions are reversed. If you believe Bitcoin will fall and open a short under the same conditions:

- Entry point: 20,000 USD
- Invested capital: 1,000 USD
- Opened position: 10,000 USD (with 10x leverage)

This time, if the price rises, you incur a loss. If the price reaches 22,000 USD, a 10% positive movement occurs. Unlike the long position, this leaves nothing remaining as collateral. The **liquidation price is triggered at 22,000 USD**, and your position is automatically closed by the exchange.

### The Fundamental Difference Between Long and Short

In a long position, a price drop is dangerous — the liquid margin acts as a buffer against falling prices. In a short position, a price increase is risky — the liquid margin provides a safety distance. In both cases, the higher the leverage ratio, the greater the impact of price movements on the collateral.

### The Critical Point of Risk Management

Calculating and knowing the liquidation price in advance is the most important step before opening a position. Especially when working with high leverage, a small negative price movement can instantly close your position. Therefore, you should use stop-loss orders to keep risks under control. A stop-loss is a safety mechanism that closes your position when a specified price level is reached, limiting your losses.

To succeed in leveraged trading, understanding **what is the liquidation price** is essential. Knowing this allows you to open positions with awareness, which is completely different from opening positions without any control.