Liquidation price
At what price does an exchange automatically close a leveraged position, and why is that price a hard line for a trader?
In plain words
A liquidation price is the price at which an exchange automatically closes a leveraged position once the trader's remaining margin falls below the maintenance margin, the small buffer required to keep it open. For a leveraged long it sits below entry; for a short, above. Higher leverage places it nearer entry.
Why it matters
The liquidation price converts a percentage move into a survival threshold. A position that would have been fine at modest size can be closed out at a loss before the market ever reaches the level the trader expected, and the exchange's closing order adds selling or buying pressure at exactly the moment the market is already moving hard.
In a real week: ETH, week of 18 February 2019
In the week of 18 February 2019, ETH opened at 133.77 and closed at 132.10, a change of -1.25%, but the week's range ran from a high of 166.00 on 2019-02-24 03:00 UTC to a low of 131.70 on 2019-02-24 23:00 UTC, a range of 26.04%. The worst day was 2019-02-24 at -16.26%, including a largest one-hour move of -13.13% at 14:00 UTC. A leveraged long entered near the 166.00 high would have needed its liquidation price to sit below the week's low of 131.70 to avoid being closed out that week.
A common mistake
Treating the liquidation price as a normal support level. It is a mechanical threshold set by position size and maintenance margin, not a level other traders are watching for its own sake, and it moves whenever the position is changed.