Forced Liquidation

When you’re trading with leverage, the liquidation price is something you’ll need to keep a close eye on. The higher the leverage you use, the closer the liquidation price is to your entry. How so? Let’s look at an example.

Forced liquidation typically incurs an additional liquidation fee. This varies with each platform but exists to incentivize traders to manually close their positions before they’d have to be automatically liquidated. So make sure you understand all the risks before entering a leveraged position.

Many trading platforms will allow you to calculate your liquidation price before entering a position. Binance Futures has a handy calculator that lets you calculate your PnL (Profit and Loss), target price, and liquidation price in advance.

In more traditional settings, liquidation is also used in the context of bankruptcy procedures, where an entity is forced to convert their assets into “liquid” forms (cash).