I find that many people still don’t truly understand what the liquidation price is, or they understand it but don’t take the right actions. Today, I want to share some lessons drawn from my own and my friends’ losses in futures contract trading.

First, you need to understand this clearly: the liquidation price is the price level at which the system will forcibly close your position. It’s not something you choose, and not something you decide—it's the system that automatically executes it. At that moment, all of your margin disappears, and not a single dollar is left.

So how is the liquidation price calculated? The basic formula is: Liquidation Price = Opening price of the position - or + the distance that wipes out your margin. But to truly understand it, you need to know what it depends on. The leverage ratio is the most decisive factor. The higher the leverage, the closer the liquidation price is to your position—that means the risk is greater. The direction of opening the position also matters: if you go long, the liquidation price will be below; if you go short, it will be above. The more initial capital you have, the stronger your ability to withstand volatility. And finally, the greater the asset’s volatility, the higher the chance that price will approach the liquidation price.

Let me give you a concrete example to make it easy to imagine. Suppose you use 1000U with 10x leverage to buy BTC. At that time, the BTC price is 60,000U, so you opened a position of 10,000U. Because it’s 10x leverage, your margin is only 1000U. So if BTC drops from 60,000U to around 54,000U, your 1000U margin will be completely wiped out, and the system will liquidate immediately.

But if you use 2000U with 5x leverage, your position is still 10,000U. However, because you have more capital and lower leverage, BTC has to drop below 52,000U before liquidation occurs. Same position, but the liquidation price differs by as much as 2000U! That’s why capital management is so important.

I’ve realized that many people fall into a very serious mistake: they think, “The liquidation price is still far away, so I’m safe,” then “wait a bit—it might bounce back,” and finally “wait until it happens, then talk.” The result is usually that you don’t cut losses in time, you get swept again and again by liquidation, and in the end you’re left with a complete mess that can’t be salvaged.

The biggest mistake is only looking at the liquidation price. It’s a “death line,” not “the maximum loss you can tolerate.” Real trading is something you decide—not something the system cleans up for you. Liquidation means losing control; cutting losses means self-control. The liquidation price is just the final outcome, but risk management is the only way to survive.

Want to keep your account stable and not fear liquidation? It’s not about “absorbing” moves or “waiting for a bounce,” but about having a real strategy: allocate your positions reasonably from the start, set up a stop-loss mechanism during the process, and adjust your pace of increasing or decreasing positions wisely. That’s how you can last in this market long term. Do you understand what the liquidation price is now—and do you know how to avoid it?