How to Calculate Your Liquidation Price: When the Exchange Closes Your Leveraged Position
The liquidation price is the level at which your exchange force-closes a leveraged position. Here are the formula for long and short, a worked example, and the cost items that squeeze the buffer tighter in practice than the arithmetic suggests.
The liquidation price is the level at which your trading platform closes a leveraged position without asking, because the collateral you posted no longer covers the accumulated loss. You need that single number before you enter, not afterwards. For a long position it can be estimated in one line: liquidation price ≈ entry price × (1 − 1 ÷ leverage + maintenance margin rate). With an entry at $77,000, ten times leverage and a maintenance margin rate of 0.5 percent, the liquidation price works out at roughly $69,685, or 9.5 percent below the entry. The rest of this article explains where each part of that formula comes from, why your exchange shows a slightly different figure, and which running costs squeeze the buffer further.
What Is a Liquidation Price in Crypto Trading?
Opening a leveraged position means borrowing buying power. You put up an amount as margin, the exchange supplies the rest, and the position moves at full size. Margin is simply the collateral you post for that one trade. If the price runs against you, that amount melts away. The liquidation price marks the point at which it has melted so far that the exchange will no longer carry the risk.
The term liquidation describes the forced close itself: the platform sells your long position, or buys back your short position, without needing your consent. On most trading screens the liquidation price sits right next to the entry price, usually in red. For Bitcoin you see this figure in every perpetual view; where the price has gone since is covered in our Bitcoin price prediction.
Liquidation Is Not a Stop-Loss
A stop-loss is your own order: you set the price at which the position closes, and you decide how much loss you accept. Liquidation is the exchange pulling the emergency brake, and it carries an extra liquidation fee. The practical difference is large, because an exit you set yourself usually leaves capital behind, while a liquidation at high leverage consumes the entire margin of that position. Anyone trading with leverage therefore sets the exit personally instead of leaving it to the emergency brake.
How to Calculate the Liquidation Price for a Long Position
The underlying idea is simple. Your collateral covers a certain drawdown, roughly the inverse of the leverage. At ten times leverage you post ten percent of the position value, so the position tolerates around ten percent of decline. Because the exchange steps in before that point, the maintenance margin is added on top.
The calculation needs three inputs:
- Entry price — the price at which the position was actually filled, not the price you meant to enter.
- Leverage — the ratio of position size to your margin. With $1,000 of collateral and a $10,000 position, leverage is ten.
- Maintenance margin rate — the share of the position value you have to keep at a minimum for the position to stay open.
For a long that gives: entry price × (1 − 1 ÷ leverage + maintenance margin rate). For a short the signs flip: entry price × (1 + 1 ÷ leverage − maintenance margin rate). The calculation applies to an isolated position in a linear USDT contract and leaves out fees and funding costs. As an estimate before entry that is enough; the binding figure sits in the position row on your platform.
Why the Maintenance Margin Shifts the Calculation
The maintenance margin is the floor below which a position counts as undercollateralised. That floor always sits below the initial margin, and the gap between the two is your room to move. The rate depends on position size and on the asset traded; the leverage you choose plays no part in it. The larger the position, the higher the tier and the higher the percentage required. Exchanges publish tier tables for this, in which the rate rises with the position value.
A solid order of magnitude comes from the documentation of the decentralised exchange Hyperliquid: there the maintenance margin equals half the initial margin at maximum leverage, which depending on the asset works out at between 1.25 percent for assets with 40x maximum leverage and 16.7 percent for assets with 3x maximum leverage. In practice that means a liquid asset such as Bitcoin carries a rate in the low fractions of a percent up to a few percent, while a thinly traded altcoin can carry a multiple of that. Applying the same leverage to a small coin therefore leaves less buffer than with Bitcoin, even though the leverage number looks identical.
Why Your Number Differs Slightly
Run the numbers yourself and compare them with the exchange display, and a few dollars of difference usually remain. Three items that feed into the platform's own calculation explain it: the opening fee already paid, the closing fee held in reserve and, depending on the model, a liquidation fee. All three reduce the available margin before the price has moved at all. The difference always points the same way: the real liquidation price sits closer to the entry than the estimate.
Worked Example: 10x Long on Bitcoin at $77,000
Assume you open a long position on Bitcoin at an entry price of $77,000. You post 1,000 USDT as isolated margin, leverage is ten, so the position size is 10,000 USDT. Your exchange applies a maintenance margin rate of 0.5 percent at this tier.
Filling in the numbers: 77,000 × (1 − 0.1 + 0.005) = 77,000 × 0.905 = $69,685. If the relevant price falls to that level, the position is closed. The distance is $7,315, or 9.5 percent. Without the maintenance margin the arithmetic point would sit at $69,300, so the exchange steps in around $385 earlier.
The Same Entry, Three Leverage Levels
The calculation becomes interesting in comparison. With an identical entry price of $77,000 and the same maintenance margin rate, the picture is this:
- Leverage 2: liquidation at around $38,885, which is 49.5 percent of room.
- Leverage 10: liquidation at around $69,685, 9.5 percent of room.
- Leverage 25: liquidation at around $73,535, 3.5 percent of room.
- Leverage 100: liquidation at around $76,615, 0.5 percent of room.
The last line is the real finding. A hundred times leverage does not survive a price move of half a percent. Bitcoin produces moves of that size regularly within minutes, around inflation data or central bank meetings for instance. A 100x trade is therefore less a bet on direction than a bet that the market will stand still for the next few minutes.
Short Positions: Why the Liquidation Price Sits Above Your Entry
On a short you earn when prices fall, so a rally is what threatens you. The liquidation price moves upwards accordingly. For a 20x short entered at $77,000 with a 0.5 percent maintenance margin rate, the formula gives: 77,000 × (1 + 0.05 − 0.005) = $80,465. A rise of 4.5 percent ends the position.
One structural difference from a long matters here. A long position's loss is capped at zero on the downside, while a short position's loss is arithmetically open to the upside. In practice liquidation catches that case long before, which is why short traders find the liquidation threshold sitting particularly close to the entry as soon as a market turns into a recovery. Anyone trading both sides should therefore set up the calculation separately for each direction rather than mirroring a rule of thumb.
Isolated Margin or Cross Margin: Which Margin Mode Sets Your Buffer
The margin mode decides which capital is liable for a position, and it shifts the liquidation price more sharply than most settings in the trading menu. In isolated margin mode, only the amount you assigned to that single position is liable. If the trade goes wrong, you lose that amount and nothing else. In cross margin mode, the entire free balance of your trading account is liable. The liquidation price moves further away as a result, because more capital stands ready to absorb the loss.
The price of that greater distance is the size of the damage. A liquidation in cross mode can empty the trading account in one go, while in isolated mode only the assigned margin is affected. For building a position that means: cross moves the threshold, isolated limits the consequences. Anyone holding several positions at once should also bear in mind that in cross mode a single bad trade eats into the buffer of every other position.
Adding Margin Moves the Threshold but Solves Nothing
Almost every platform allows you to add margin to an isolated position after the fact. That pushes the liquidation price further away and buys time. Arithmetically, paying into the position is the same as lowering the effective leverage. The function becomes dangerous when it turns into a habit: every top-up raises the amount lost in a later liquidation. A limited loss turns step by step into a large one.
Mark Price Instead of Last Price: Which Price Triggers Liquidation
What triggers the close is, as a rule, not the last traded price on your own exchange but the mark price. That is a smoothed reference price built from prices on several venues. Hyperliquid describes its own method as liquidations using the mark price, which combines external exchange prices with the state of its own order book.
This construction protects you from a whole class of incidents. If the order book on a single exchange thins out for a moment and one sell order pushes the last price far down, that spike triggers no wave of liquidations as long as the reference price stays stable. The flip side: you can be liquidated even though the price on your chart never touched the liquidation price, because the reference price stood lower elsewhere. Anyone checking their threshold should therefore use the platform's mark price display rather than the candle chart.
What Funding Rate, Fees and Slippage Take Out of Your Buffer
A perpetual contract has no expiry date. To keep its price tethered to the spot market, the long and short sides pay each other a balancing payment at fixed intervals, the funding rate. When the market sits in a pronounced bullish mood, the longs pay, and the payment is taken from the margin. Over several days that adds up to a noticeable amount, which shrinks the distance to liquidation without the price having moved at all. How this mechanism works in detail, and what part it plays on decentralised venues, is taken apart in our piece on what a perp DEX is.
On top of that come the trading fees on opening and closing, plus slippage, the difference between the expected and the actual execution price. In fast market phases slippage is no marginal item: when the liquidation is triggered, the exchange sells at exactly the moment when many positions are being closed in the same direction anyway. The price achieved then regularly sits below the arithmetic liquidation price. That is precisely why at high leverage levels no remainder of the margin is usually left, even though the calculation before entry produced a small residual amount.
A Realistic Buffer Instead of a Bullseye
From these items follows a workable rule. Treat the calculated liquidation price as an optimistic boundary and plan your own exit noticeably ahead of it. Putting the stop-loss at the same price where the forced close is waiting effectively gives you a second liquidation at the same spot. A distance that can absorb fees, funding and an unfavourable fill is the actual purpose of the whole calculation.
Partial Liquidation, Insurance Fund and Auto-Deleveraging: What Happens Next
For large positions the forced close does not run in a single step. Hyperliquid, for instance, initially places only 20 percent of the position into the order book as a market order for positions above 100,000 USDC, and then waits 30 seconds before the orders cover the whole position. The purpose of that staging is to protect the market: a large position thrown into a thin order book all at once moves the price and thereby liquidates the next position.
If the proceeds are not enough, the second safeguard takes over. When a position falls below two-thirds of the maintenance margin, a dedicated liquidator pool at Hyperliquid takes on the position, and its earnings go to the community of depositors. Centralised exchanges run an insurance fund for this, fed by the surpluses of successful liquidations and covering shortfalls. Only when that buffer is not enough either does auto-deleveraging come into play: the exchange then forcibly closes the opposing positions of profitable traders to balance the books.
For you as a user an uncomfortable conclusion follows. Even a position that is right can be closed in an extreme market phase, because the other side has defaulted. Anyone deploying larger amounts should therefore check how the chosen platform handles that case and how large its insurance fund is. If you want to compare venues on those terms, the conditions and safeguards are set out in our overview of crypto brokers.
How Much Leverage German Retail Traders Are Allowed
The calculation above applies everywhere in technical terms. Legally, in Germany, it runs into a hard limit. In its general decree on contracts for difference, BaFin laid down that a provider must demand an initial margin of 50 percent of the notional value from a retail client on a CFD on a cryptocurrency. That corresponds to leverage of two to one, and therefore to the most generous buffer in the whole table above: close to 50 percent of price decline before the threshold is reached.
The same decree sets out two further protections that matter in connection with liquidations: a margin close-out protection, which closes the position automatically when it is undercollateralised, and negative balance protection, which prevents a trade from turning into a claim against you. Anyone trading perpetual contracts at 20 or 50 times leverage on a platform outside that framework is operating in an environment where neither guarantee applies. Between two percent and fifty percent of room lies the actual substance of this regulation.
Why the Number in the Menu Is Not the Whole Truth
Many platforms show a slider up to 100x but apply the high tier only to small position sizes. As soon as the position grows, the next tier of the maintenance margin table takes effect and the effective leverage falls automatically. The leverage figure on display is therefore an upper limit for small amounts, not a guarantee for every position size. Check your exchange's tier table before you deploy a larger sum.
Five Mistakes That Pull the Liquidation Price Closer
Most forced closes originate in the position size, not in a wrong view of the market. Five patterns come up again and again:
- Leverage is mistaken for a measure of risk. What counts is the position size relative to the whole account, not the number in the menu. Twenty times leverage on two percent of the account is more harmless than three times leverage on the entire balance.
- The buffer is calculated without costs. Funding, fees and slippage are missing from the estimate and push the actual threshold closer to the entry.
- Nobody recalculates after adding to a position. Every increase in size shifts the average entry price and with it the threshold. The old figure carried in your head is then wrong.
- The margin mode stays on cross although the position was meant as a single bet. The entire account balance is liable, without anyone having decided that consciously.
- The position is held over a weekend or a data release. Thin order books and scheduled figures produce exactly the short, violent moves that a tight buffer cannot absorb.
All five points can be checked in two minutes before entry. Public data sites such as Coinglass additionally show how much capital was force-closed across the market per 24 hours; a glance at that places your own position size in the context of what the market is doing.
After a Liquidation: Why You Should Save the Exchange Statement Immediately
A liquidation is a completed event with a realised result. For sorting it out later you need three records from your account: the statement of the closed position with timestamp and execution price, the breakdown of funding amounts paid, and the fee statement for the period. Many exchanges keep these extracts available in the account only for a limited window, and after a delisting or an account closure they are sometimes no longer retrievable at all.
How it is treated for tax depends on which instrument you traded and in which country you are liable to tax; that question belongs in the hands of a tax adviser and cannot be answered in general terms. What you can do regardless is document everything without gaps. A portfolio tracker that pulls the trading history from the exchange automatically takes that work off your hands and keeps the data even once the trading account has long been empty. The effort is a one-off, the benefit stays.
Calculating Your Liquidation Price: What to Take Away
- Work out the threshold before every entry. Entry price × (1 − 1 ÷ leverage + maintenance margin rate) for a long, with the signs reversed for a short. Note the figure together with the planned exit before the order goes out. Which venues offer which maintenance margins and safeguards is set out in our comparison of the best perp DEXs.
- Check the margin mode and the position size separately. Isolated limits the damage, cross moves the threshold. Together the two decide how much a single bad trade costs your account. Calculators and position monitoring are covered in our overview of the best analytics tools.
- Save the statement as soon as a position has been closed. Trading history, funding and fees belong exported and archived, ideally automatically. Suitable tools are set out in our comparison of crypto tax tools and portfolio trackers.
(As of September 11, 2026. This article is not investment advice. Prices and fee structures change; check the terms with the provider before you buy.)
Transparency note: This article was produced with the assistance of artificial intelligence and reviewed by our editorial team before publication. All figures and claims were checked against the primary sources linked in the text. The feature image was generated with AI.
