Simple English definitions for legal terms
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Liquidation price: The price at which an asset is sold to pay off debts or losses. It is the minimum price at which an investor must sell their asset to avoid further losses.
Definition: The liquidation price is the price at which an investor's position is automatically closed out by the exchange or broker to prevent further losses.
For example, let's say an investor buys 100 shares of a stock at $50 per share, and sets a stop-loss order at $45. If the stock price drops to $45, the stop-loss order will trigger and the investor's position will be automatically sold at the current market price. The liquidation price in this case is $45.
Another example is in futures trading. If an investor buys a futures contract at a certain price and the price drops below a certain level, the exchange will automatically close out the position at the current market price to prevent further losses. The liquidation price in this case is the price at which the position is closed out.
These examples illustrate how the liquidation price is used to limit an investor's losses and prevent them from losing more money than they can afford.