4. Liquidation Price: Danger Zone 🚨
Trigger: If your losses erode your margin (your initially invested capital) to a critical level, your position will be automatically closed to prevent further losses.
Leverage & Liquidation: Higher leverage brings the liquidation price closer to your entry price, increasing the risk of automatic closure.
5. Trading Fees: The Cost of Doing Business 💸
Exchange Fees: Binance charges a small fee on each trade (open and close).
Impact on Profits: These fees eat into your potential gains and increase your overall losses.
How They Relate
Leverage & Position Size: Higher leverage = larger position size.
Position Size & Funding: Larger position size = larger funding fees (paid or received).
Leverage & Liquidation: Higher leverage = closer liquidation price.
Position Size & Liquidation: Larger position size = closer liquidation price.
Position Size & Trading Fees: Larger position size = higher trading fees.
Examples:
Low leverage: $10,000 leveraged 10x controls a $100,000 position. Lower funding, further away from liquidation, lower transaction fees.
High leverage: $10,000 leveraged 50x controls a $500,000 position. Higher funding, closer to liquidation, higher transaction fees.
Key takeaways:
Manage risk: Carefully consider leverage, position size, and the potential impact of funding and transaction fees.
Know your limits: Always pay attention to your liquidation price and avoid excessive risk.
Disclaimer: This information is for educational purposes only and does not constitute financial advice.
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