Margin and liquidation

Summary

Your margin is the buffer that absorbs losses. When losses eat into it past a set level, the exchange closes the position automatically: this is liquidation, and the margin is lost. The higher the leverage, the closer the liquidation price sits to your entry. Fees and funding also reduce the buffer over time.

Key points

• Liquidation is the forced close when margin runs out.
• Higher leverage puts the liquidation price closer to your entry.
• Fees and funding slowly reduce the margin too.

Check yourself

What happens to the liquidation price as leverage goes up?

Practice