In the ever-evolving world of online trading, understanding the mechanics behind key trading metrics can be a significant advantage. One such metric, the Estimated Liquidation Price, serves as a critical indicator for managing risk effectively. Our WebTrader platform calculates this price to help traders monitor their potential exposure. Here’s how we do it, and what you need to know about its estimated nature.
How We Calculate Estimated Liquidation Price
Buy Positions:
The estimated liquidation price for a buy position is calculated as follows:
Estimated Liquidation Price = Bid Price – (Calculated Equity / (Volume * Contract Size))
Sell Positions:
For sell positions, the formula is slightly different:
Estimated Liquidation Price = Ask Price + (Calculated Equity / (Volume * Contract Size))
The estimated liquidation price is not determined when it is negative.
Key Components:
- Calculated Equity: This is your account equity minus a fraction determined by the stop-out level. Calculated Equity = Equity – (Stop out level % * Margin)
- Contract Size: The quantity of the asset each contract represents.
- Conversion: The calculated equity is always converted into the currency of the traded instrument.
Special Considerations for Multiple Positions
Handling multiple positions on a single symbol requires special considerations:
- Unified Direction: If all positions are either buy or sell, we sum the volumes and calculate one liquidation price for all.
- Full Hedge: If positions are perfectly hedged (equal volumes of buys and sells), the liquidation price is not applicable, displayed as ‘-‘.
- Partial Hedge: For offsetting positions where volumes do not zero out, the Estimated Liquidation Price is not calculated.
Important Disclaimer
It’s important to remember that the Estimated Liquidation Price is just that—estimated. The actual execution price may differ due to market conditions and other factors. Our company does not take responsibility for discrepancies between the estimated and actual execution prices. Traders should use the Estimated Liquidation Price as a guide and risk management tool, but not as a definitive prediction.
Final Thoughts
The Estimated Liquidation Price is a valuable feature designed to enhance your trading by providing insights into potential risk thresholds. By understanding where your positions may be automatically closed, you can better manage your strategies and adjust your positions to maintain the desired level of risk.
Stay informed, stay strategic, and trade wisely.
