How to Adjust the Position's Liquidation Price on LeveX

When trading on margin, particularly with leverage, understanding and managing your position’s liquidation price is essential for avoiding forced liquidation. The liquidation price is the price at which your position will be closed automatically by the exchange, resulting in the loss of your collateral. Whether you're trading in isolated or cross-margin mode on platforms like Levex, there are strategies to adjust and control this critical figure to better protect your investments. Here’s how you can adjust your position's liquidation price:

1. Isolated Margin: Adjust Leverage or Margin

In isolated margin mode, the margin is only allocated to a specific position, and you can control the liquidation price by modifying either the leverage or the margin:

• Adjusting Leverage: By increasing the leverage, you can reduce the amount of margin required for a given position size. However, this also increases the risk, as small adverse price movements can lead to liquidation at a much lower price. Reducing leverage, on the other hand, lowers your risk, but you may need to add more margin to meet the new requirements. For example, reducing leverage can help distance your liquidation price from the current market price, but the total margin in your account needs to be sufficient to support the position.
• Adding Margin: To push the liquidation price further from your entry price, you can add more margin to your isolated position. This will increase the overall margin balance, making it less likely that you will be liquidated in case the market moves against your position. Adding margin gives you more breathing room and can be particularly useful if the market is volatile.

However, it’s important to note that while adjusting leverage or adding margin can reduce the risk of liquidation, they also come with their own challenges. Lower leverage requires more capital, and adding margin increases your exposure to market risk.

2. Cross Margin: Account-wide Risk Management

In cross margin mode, the entire margin balance is shared across all open positions. This means that changes to one position can affect the liquidation price of all other positions within the account. Unlike isolated margin, cross-margin trading allows you to use the available balance across multiple positions to avoid liquidation, but it also means that the liquidation price can constantly shift due to the following factors:

• Position Changes: If you add more margin to a losing position, you may reduce the liquidation price of that position but also risk increasing the liquidation risk for your other open positions. Conversely, reducing the size of a position or removing margin can raise the liquidation price.
• Funding Rate Adjustments: The funding rate, which is typically a small percentage of the position size, can affect the liquidation price. The funding rate is either added to or subtracted from your wallet balance, changing the liquidation price accordingly. This rate can fluctuate, especially during times of market volatility, so it’s important to monitor it.
• Wallet Balance Changes: Your overall wallet balance directly influences the liquidation price in cross-margin mode. If there is a significant increase or decrease in the wallet balance, it will either lower or raise the liquidation price of the entire account.

Thus, when trading on cross margin, managing multiple positions is crucial. The liquidation price can change frequently as new positions are added, removed, or adjusted. It’s important to keep track of the performance of all your positions and account balance to avoid sudden liquidation.

3. Key Strategies to Reduce Your Chances of Getting Liquidated

To minimize the risk of liquidation and protect your capital, consider implementing the following strategies:

1. Watch the Margin Ratio

One of the most critical metrics to monitor is your margin ratio (maintenance margin / margin balance). When this ratio hits 100%, liquidation occurs. Therefore, maintaining a sufficient margin balance is essential. A higher margin balance results in a lower liquidation price, offering better protection in case of an unfavorable market move.

• Example: If your wallet balance is higher relative to your position size, the liquidation price will be further away from your entry point, offering better protection.

2. Use Stop-Loss Orders

Setting a stop-loss order is a highly effective way to prevent large losses and reduce the risk of liquidation. A stop-loss order automatically triggers once a predefined price is reached, allowing you to exit the position before it results in significant losses.

• Example: If you open a long position at $70,000, you can set a stop-loss at 10% below that price ($63,000). This helps ensure that if the price moves against you, your position will be closed, preventing further losses and reducing the risk of hitting your liquidation price.

3. Avoid Adding More Contracts to a Losing Position

In cross-margin mode, adding more contracts to a losing position increases your exposure and will raise the liquidation price of your entire position. This is a risky move, as it may seem like you are "averaging down" the price, but it can instead push your liquidation price closer to your entry point.

• Example: Suppose you have a $1,000 position on a losing ETH trade, and you add another $1,000 worth of ETH. Your liquidation price will be recalculated, and it may increase your liquidation risk.

4. Maintain a Sufficient Margin Balance

Ensuring that your margin balance remains above the required maintenance margin is essential to avoid liquidation. A higher margin balance can give you additional cushion and space for adverse price movements, reducing the chances of liquidation. Regularly adding margin can give you more flexibility and a lower liquidation price.

• Example: In the scenario where you have a long ETH position with 20x leverage, you can add more margin to push your liquidation price further down, giving you more protection if the price starts to move against you.

5. Don't Overleverage Your Position

Using excessive leverage increases the risk of liquidation, especially during volatile market conditions. By keeping leverage at manageable levels, you can reduce the likelihood of being liquidated. High leverage can create larger price swings, making your liquidation price much more vulnerable to market fluctuations.

Conclusion

In margin trading, particularly on platforms like Levex, adjusting the liquidation price is crucial to managing risk effectively. By understanding how leverage, margin, and cross-margin features work, you can take steps to adjust your liquidation price to stay safe from forced liquidation. Regularly monitor your margin ratio, use stop-loss orders, avoid adding more contracts to losing positions, and manage your leverage wisely to reduce your chances of liquidation. Remember, the goal is not just to avoid liquidation, but to position yourself for long-term success in margin trading.

Content contributor: Marcus (LeveX, Customer Support Team)