Liquidation Price Explained: How Leverage Decides Where You Get Liquidated
Your liquidation price is the price at which the exchange force-closes a leveraged position because the margin left can no longer cover the loss. The higher the leverage, the closer it is to your entry.
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- Liquidation happens when your remaining margin falls to the maintenance margin, not when it reaches zero.
- Roughly: a long is liquidated about 1 ÷ leverage below entry, a short about 1 ÷ leverage above it, minus the maintenance margin.
- At 100× leverage the liquidation price is only about 0.5% away from entry. At 10× it is about 9.5% away.
- A stop-loss placed before your liquidation price is the only way to decide your own exit.
Leverage lets you open a position bigger than your account, but the exchange needs to know you can cover the losses. Your margin is that guarantee. If the position moves against you far enough that the margin is almost gone, the exchange steps in and closes it for you. The price where that happens is your liquidation price.
How Liquidation Price Is Calculated
For a simple isolated-margin position, the approximation most traders use is: long liquidation price ≈ entry × (1 − 1/leverage + maintenance margin rate), and short liquidation price ≈ entry × (1 + 1/leverage − maintenance margin rate).
The maintenance margin rate is the minimum margin the exchange requires you to keep, usually 0.4% to 1% on major perpetual futures, rising for very large positions. Fees and funding payments also eat into margin, so the real liquidation price drifts slightly closer over time.
| Leverage | Long liquidation (entry $80,000) | Short liquidation (entry $80,000) | Distance |
|---|---|---|---|
| 5× | $64,400 | $95,600 | 19.5% |
| 10× | $72,400 | $87,600 | 9.5% |
| 25× | $77,200 | $82,800 | 3.5% |
| 50× | $78,800 | $81,200 | 1.5% |
| 100× | $79,600 | $80,400 | 0.5% |
Isolated vs Cross Margin
With isolated margin, only the margin you assigned to that position is at risk, and the liquidation price is fixed by that margin. With cross margin, your whole futures balance backs every open position, so the liquidation price moves further away, but a bad trade can drain the entire account instead of one position.
Why Liquidation Prices Matter to Everyone
Because so many traders use similar leverage, their liquidation prices bunch up. A burst of new 25× longs opened around $84,000 all share a liquidation price near $81,000. Those bunches are the clusters you see on a liquidation heatmap, and they explain why price so often accelerates through certain levels.
How to Avoid Being Liquidated
Use leverage you can explain: if the market’s normal daily move is 3%, a 50× position with a liquidation price 1.5% away is a coin toss. Size the position so that your stop-loss, not the exchange, closes the trade. And check where the big liquidation clusters are: a stop or a liquidation price sitting inside a dense cluster is exactly where price tends to move fastest.
The safest place to learn all this is on a paper trading account, where a liquidation costs nothing but the lesson.
Key takeaways
- Liquidation price ≈ entry × (1 ∓ 1/leverage ± maintenance margin).
- Higher leverage puts the liquidation price much closer to entry.
- Clusters of similar liquidation prices are what a liquidation heatmap shows.
- Let a stop-loss close the trade before the exchange does.
Common mistakes
- Thinking liquidation happens at zero margin. It happens earlier, at the maintenance margin.
- Ignoring fees and funding, which slowly move the liquidation price closer.
- Using cross margin without realising one position can take down the whole balance.
Frequently asked questions
How do I calculate my liquidation price?
For an isolated position: long ≈ entry × (1 − 1/leverage + maintenance margin rate); short ≈ entry × (1 + 1/leverage − maintenance margin rate). Your exchange shows the exact figure, which also includes fees and your position’s margin tier.
Does a stop-loss prevent liquidation?
Yes, if it is placed before the liquidation price and gets filled. In very fast moves a stop can slip, so keep a sensible gap between your stop and your liquidation price.
What leverage is safe?
There is no universally safe level, but the liquidation price should sit well beyond the market’s normal swings. Many experienced traders keep effective leverage low and size positions from their stop distance, not from the maximum leverage offered.
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Disclaimer: this article is educational content, not financial advice. Markets involve risk, and past behavior does not guarantee future results.
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