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How much does Bitfinex 5x leverage fall before liquidation

To trade with 5x leverage on Bitfinex, a trader's liquidation price is determined by subtracting their maintenance margin from their initial margin and dividing the result by the leverage factor.

Nov 09, 2024 at 04:41 am

How Much Does Bitfinex 5x Leverage Fall Before Liquidation

Introduction

Leverage is a trading strategy that allows traders to amplify their potential profits by borrowing funds from a broker. While leverage can magnify profits, it also amplifies losses. This is because traders are responsible for repaying the borrowed funds, regardless of whether their trades are profitable.

Bitfinex Leverage Levels

Bitfinex offers a range of leverage levels for its users, from 1x to 10x. The amount of leverage that a trader can use depends on the type of instrument being traded and the trader's account balance.

Liquidation

If a trader's losses exceed their account balance, they will be liquidated. This means that the broker will sell the trader's positions to cover the losses. The liquidation price is the price at which the trader's positions are sold.

How Much Leverage to Use

The amount of leverage that a trader should use depends on a number of factors, including:

The trader's risk tolerance
The volatility of the instrument being traded
The amount of capital that the trader has available

5x Leverage

5x leverage allows traders to trade with five times their account balance. This means that if a trader has $1,000 in their account, they can trade with $5,000.

Margin Call

If a trader's losses approach the liquidation price, they will receive a margin call. This is a warning from the broker that the trader's account is at risk of liquidation.

Steps to Calculate Liquidation Price for 5x Leverage on Bitfinex

Determine the risk-free collateral (RFC). The RFC is the amount of capital that a trader has available to cover potential losses. To calculate the RFC, subtract the trader's maintenance margin from their initial margin.
Calculate the maintenance margin. The maintenance margin is the amount of capital that a trader must maintain in their account to avoid liquidation. To calculate the maintenance margin, multiply the initial margin by the maintenance margin multiplier.
Calculate the initial margin. The initial margin is the amount of capital that a trader must deposit into their account to open a leveraged position. To calculate the initial margin, divide the RFC by the leverage factor.
Calculate the liquidation price. The liquidation price is the price at which the trader's positions will be sold to cover losses. To calculate the liquidation price, subtract the maintenance margin from the initial margin and divide the result by the leverage factor.

Example

Let's say that a trader has $1,000 in their account and they want to trade with 5x leverage.

Step 1: Calculate the RFC. RFC = $1,000 - $100 = $900
Step 2: Calculate the maintenance margin. Maintenance margin = $100 x 0.9 = $90
Step 3: Calculate the initial margin. Initial margin = $900 / 5 = $180
Step 4: Calculate the liquidation price. Liquidation price = $180 - $90 = $90

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