Liquidation Cost
Liquidation cost is based on the bid-ask spread. For an individual security, the cost is
LC = ([ask price] - [bid price])/2
For a position, the cost is multiplied by the quantity and any contract multiplier, then translated into the base currency. In practice, then cost to liquidate a position could be considerable higher or lower.
When we do not have a market bid and ask price, we often estimate the bid-ask spread. We make use the underlying bid-ask spread (we do this for CFDs and Fx Forwards) or we may base our estimate on a model based on historical data (we do this for options, using the option’s time to expiry and delta).