After opening a futures position, the app displays an “estimated liquidation price.” Where does this number come from?
【Simplified calculation】Take a 10x long position as an example: 100U in capital, 1,000U in position size. When losses eat through your margin
(after deducting the maintenance margin requirement), liquidation is triggered. Roughly speaking, in cross-margin mode,
Liquidation distance ≈ 1 / leverage. 10x ≈ a 10% move against you, 5x ≈ 20%, 20x ≈ 5%.
【Why flash wicks happen】During periods of high volatility, many traders get liquidated at once. Their liquidation orders flood the market and push prices down even further,
triggering a cascade—this is why sharp drops often come with long wicks. If your stop-loss is placed where everyone
If you're placing orders at the same levels, they'll get swept up along with the liquidation orders.
【Practical takeaways】1. The higher your leverage, the closer your liquidation price is to the current price—one small move can knock you out;
2. Always set your stop-loss before your liquidation price. Otherwise, you won't even get the chance to admit you were wrong;
3. Don't rush to buy the dip when you see a long lower wick—it might be someone else's liquidation putting on a show.
What do you think? Share your experiences in the comments.