Introduction
In the domain of cryptocurrency trading, it’s vital for traders to have a grasp of various tools and calculations that govern their trading journey. One such crucial concept is the estimated liquidation price in futures trading. This price is pivotal for assessing risk, as it assists traders in understanding how close their investments are to potential losses.
What is Estimated Liquidation Price?
The estimated liquidation price represents a reference value for traders, indicating at which market price a position will be liquidated due to insufficient margin. This figure is not static; it fluctuates based on market conditions and an individual’s account status. For instance, factors such as market movements, trading activity, and margin levels can significantly influence this price range.
Traders can monitor the estimated liquidation price on their order and position pages to take proactive measures in mitigating risk.
Calculation of Estimated Liquidation Price
Understanding how to calculate this price is essential for effective trading strategy. Below are the methodologies based on different margin structures:
Isolated Margin Calculation
In isolated margin trading, the formula for estimating the liquidation price is as follows:
Formula:
Estimated liquidation price =
[
\frac{( ext{position margin} – ext{position size} \times ext{average entry price} \times ext{position direction})}{( ext{position size} \times ( ext{MMR} + ext{TakerFeeRatio} – ext{position direction}))}
]
- MMR: Maintenance margin rate of the trading pair.
- Position Direction: A value of
1indicates a long position, while-1signifies a short position. - TakerFeeRatio: The fee rate applied when placing taker orders.
Cross Margin Calculation
The estimated liquidation price under cross margin can vary significantly between hedge mode and one-way mode due to differing risk calculation methodologies.
Hedge Mode (Cross Margin)
Formula 1 (When long position value + long order value ≥ short position value + short order value):
[
ext{Estimated liquidation price} = rac{(X \times BP – ext{long position size} \times ext{average long holding price} + ext{short position size} \times ext{average short holding price} – ext{long order size} \times ext{long order price} \times ( ext{MMR} + ext{TakerFeeRatio}))}{( ext{long position size} \times ( ext{MMR} + ext{TakerFeeRatio}) – ext{long position size} + ext{short position size})}
]
Formula 2 (When long position value + long order value < short position value + short order value):
[
ext{Estimated liquidation price} = rac{(X \times BP – ext{long position size} \times ext{average long holding price} + ext{short position size} \times ext{average short holding price} – ext{short order size} \times ext{short order price} \times ( ext{MMR} + ext{TakerFeeRatio}))}{( ext{short position size} \times ( ext{MMR} + ext{TakerFeeRatio}) – ext{long position size} + ext{short position size})}
]
One-Way Mode (Cross Margin)
In one-way mode, the estimated liquidation price is calculated with the following variations based on the current position evaluations.
Formula 1 (When current position value + same-direction order size × order price ≥ opposite-direction order size × order price):
[
ext{Estimated liquidation price} = rac{(X \times BP – ext{position size} \times ext{position direction} \times ext{average holding price} – ext{same-direction order size} \times ext{order price} \times ( ext{MMR} + ext{TakerFeeRatio}))}{( ext{position size} \times ( ext{MMR} + ext{TakerFeeRatio} – ext{position direction}))}
]
Formula 2 (When current position value + same-direction order size × order price < opposite-direction order size × order price):
[
ext{Estimated liquidation price} = -\frac{(X \times BP – ext{position size} \times ext{position direction} \times ext{average holding price} – ext{opposite-direction order size} \times ext{order price} \times ( ext{MMR} + ext{TakerFeeRatio}))}{( ext{position size} \times ext{position direction})}
]
Conclusion
Understanding and calculating the estimated liquidation price effectively can empower traders in managing their risks efficiently on the Bitget platform. By being well-informed and prepared, traders can strategically navigate their futures trading, ensuring they make the most favorable conditions work in their favor.
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