Many people trading contracts have this line in their minds:
It's fine if you don't look
But staring at it is suffocating
That line is called the liquidation price.
You must be familiar with this typical scenario:
When the order is just opened:
"It's still far from liquidation, no big deal."
The market is slightly reversing:
"Why is it suddenly getting closer to liquidation?"
Walk a few more reverse K lines:
The time spent watching the market is rising sharply
Heart rate follows the market fluctuations
Not sure whether to 'add margin to protect' or 'cut losses and admit defeat'
In the end, it often evolves into one sentence:
"It's not that I don't know to stop loss, it's just that when it's about to blow up, I collapse first."
Today's post will only cover two things:
What is the liquidation price? What role does it play in risk control?
Why do you become more prone to losing control of your emotions as the price gets closer to the margin call price? How can you improve this?
I. What exactly is the liquidation price? In short...
Don't be intimidated by all the formulas; let's start with something simple:
Liquidation price = the price at which the platform forces you to "stop loss".
When your unrealized losses are close to wiping out your margin...
To prevent you from losing everything and ending up with negative equity, the platform...
Your position will be forcibly closed near a preset price.
This is the margin call price.
Note two points:
You don't decide when your account gets liquidated; the system does it for you.
The purpose of liquidation is not to "save you," but to "protect the platform and the counterparty," and incidentally wipe out any remaining margin you have.
Therefore, in essence:
The margin call price = the "life or death line" for this order.
But this line between life and death isn't set by you; it's set by the rules.
II. How is the liquidation price calculated? You only need to understand the "general logic".
No need to memorize formulas, just understand a few key variables:
Your opening price
Your leverage ratio / margin amount
Maintenance margin requirements for the underlying asset (platform regulations)
There's also the price tag used by the platform (not the final transaction price you see).
The logic is very simple:
Higher leverage means lower margin requirements
Prices move against you → unrealized losses increase
When unrealized losses approximately wipe out most of your margin →
The platform believes that going any further means the platform is bearing the risk for you.Therefore, the liquidation mechanism was triggered near this location.
So you can remember a blunt intuition:
The higher the leverage, the closer you are to the margin call price;
The fuller your portfolio, the smaller the storm, the more likely it is to capsize you.
The "liquidation price" line you see is actually a reminder from the platform:
"At this price, the money in this order will basically be wiped out, and I will help you liquidate it."
Third, the liquidation price and the "stop-loss price" are two completely different things.
One of the most fatal misconceptions for many beginners is:
He says, "I'm very strict about cutting my losses."
In reality, the "margin call price" is used as a stop-loss.
It is important to distinguish clearly:
1) Stop-loss price: set by yourself.
You base your decisions on: trend, support, structure, and profit/loss ratio.
Active decision:
"If the price reaches this level, it means my logic for this order is wrong, I concede defeat and exit the game."
This is a risk decision you made as a trader.
2) Liquidation Price: The system will deliver the "final blow" for you.
It's not asking whether you're willing or not.
Once the line is open, we'll get to work without consulting you.
The purpose of this attack is—
"Clear out your remaining margin to prevent you from continuing to lose money on the platform."
Therefore, you can understand it this way:
The stop-loss price is your own planned "retreat line";
The liquidation price is the price set by the platform where "your body will be taken away".
If you exit every trade not through stop-loss but through a margin call,
That means:
You're not doing any risk control at all.
It's like using the entire margin to gamble that the market won't reach that "system's life-or-death line."
IV. Why do you get more nervous as the market gets closer to the margin call price?
It's not that you're overly sensitive; it's just that this storyline inherently carries a "psychological attack."
1) Liquidation price = Your losses are visualized as a "death countdown".
When you open a position, the liquidation price is usually quite far away:
It looks quite reassuring.
"It's still early, don't worry."
But when the market moves against it:
The line suddenly became tangible.
Your brain will naturally start calculating:
"If it drops another X dollars, I'll be broke."
"If another candlestick like this falls, I'm finished."
It is no longer an abstract number.
Rather, it's a final destination that determines the fate of your account.
Anything related to the "end" amplifies a person's fear.
2) When unrealized losses approach their limit, you will enter a "semi-paralyzed state".
When losses approach the point of liquidation, you will typically experience several stages:
Denial phase
"This is just a shakeout; it'll bounce back soon."
Rigid phase
Losing too much money makes me afraid to cut my losses.
I don't dare to add to my position.
Just watching the candlestick chart move closer and closer to the margin call price.
Abandonment phase
"Oh well, if it explodes, it explodes. Whatever."
When you give up,
In reality, the initiative has been lost:
Regardless of whether the market goes well or badly next...
You can only passively accept the system's arrangements.
That's why many people say:
"I should have cut my losses sooner."
But those who actually take action
It was that margin call notification sound that really caught my attention.
3) The closer you are to the liquidation price, the more likely you are to make actions that "accelerate your demise".
This is crucial.
When the price is just a hair's breadth away from the margin call price...
Many people will subconsciously think of "saving themselves":
Add a deposit
Add to position to average down cost
Move the stop-loss price down a little.
It looks like they are trying to save themselves.
Actually, they are doing the same thing:
You are personally pulling the margin call price closer to your current price.
It ended up looking like this:
It could have withstood a normal pullback for a while.
You kept patching it up, and now it's about to explode if it moves just a little further.
You weren't scared to death by the market conditions,
It was his own actions when he was about to be liquidated that led to his downfall.
Fifth, what should you consider the margin call price as?
Once you understand this, your behavior will completely change.
✅ Correct Understanding 1: The liquidation price is not a "stop-loss line," but a "red line that must never be touched."
You can establish a fundamental principle for yourself:
My stop-loss price must be far away from the liquidation price.
The liquidation price only exists in the world of "extreme accidents," not in my daily operations.
In other words:
The cancellation method for each order should be:
Active stop loss
Active profit-taking / reducing positions
Manual closing of positions
It's definitely not about waiting for the system to press that red button for you.
✅ Correct understanding 2: What you really need to focus on is "entry point + leverage ratio + position size".
When you see the margin call price is very close in the future...
Don't just focus on that line and start cursing.
Instead, I turned back and asked myself three questions:
Did I buy in when I was emotionally charged?
Did I use too much leverage, making even normal fluctuations upside down?
Am I holding too large a position? Do I break my mental composure over the slightest fluctuation?
The liquidation price is just a result.
The real question is, "How did you place this order in the first place?"
✅ Correct Understanding 3: First, set a "structural stop loss," then work backward to make the liquidation price disappear from view.
In the future, when you place an order, you can have the design reversed:
First, look at the picture:
Where is the structure obviously wrong?
Does breaking through a certain price level prove your logic invalid?
→ This is your placeTechnical stop-loss price
Let's look at the account again:
If the stop-loss is triggered, how much loss would be acceptable for me on this trade?
→ This determines your order.Position size
Leverage comes last:
Use this position size + this stop loss.
Choose a multiple that won't bring the margin call price too close together.
Once you get to this point, you'll find that:
The margin call price will be "pushed" to a very far, practically unusable position.
All you see are the "stop-loss price" and the "plan itself".
VI. Three short exercises for trading beginners
If you're always scared off by margin call prices and get liquidated, you can start by changing these three things:
① Write down three lines before each contract is opened.
Entry price: Why should I enter here?
Stop-loss price: Where should I admit I was wrong if the price falls/rises to?
Liquidation price: Now let's set this price. How far is it from the stop-loss price?
If you find:
The margin call price is very close to the current price.
Even closer than your stop-loss price
That means this wasn't a "high-probability opportunity".
It's a bomb with a high rate of death.
② Deliberate training for a period of time: using low leverage + far-from-the-liquidity price
For example, set a phased rule for yourself:
Over the next 30 days:
Leverage should not exceed 3–5 times.
The liquidation price must be sufficiently far from the current price (greater than the normal fluctuation range).
Your focus should be solely on:
Structural judgment
Position control
Stop loss execution
You will find:
The possibility of margin calls has almost disappeared.
What's truly exposed are your technical and execution problems.
This way you'll have a chance to improve, instead of being "killed" by the market right away.
③ When you see the margin call price is too close, do one thing: reduce your position, not increase it.
From now on, whenever you find:
"Huh? How come it's so close to the margin call price?"
Your first reaction shouldn't be "add more money to protect the position".
Instead, first consider whether it's possible:
Reduce holdings
deleveraging
Let's distance the risks first.
Only by pulling yourself back from the edge of the cliff first
You are the only one qualified to talk—
"Shall we fight again?"
so
The liquidation price is essentially a price line drawn by the platform for you:
The line reads, "Take one more step and you'll lose this money."
It's not something you can just "play around with".
It's not meant to replace your stop-loss order.
It's normal to feel more nervous the closer you get to the market trend.
Because that wasn't an ordinary loss.
That's the countdown to the end of your order.
A truly mature trader will do this:
Use structure to determine stop loss
Use position sizing to control losses
Using leverage to determine the speed of death
Use the margin call price as a reminder:
"This is an area that is absolutely forbidden to be touched."
(Trading for Beginners 101) This series
It helps you sort out these things on the chart that you "see every day but never really understand," one by one.
If you have experienced this multiple times:
The market ultimately moved in the right direction.
He himself died near the margin call price.
Every time, I feel like I was "just one step away from turning things around."
That would be perfect for you to come see me.
Starting with the margin call price, leverage, position size, and stop-loss...
Let's slow down your "death speed" together.
It teaches you how to survive long-term in the market.
Then we can talk about "how high it can fly".