What a liquidation price is and how it is set
Leverage makes a position bigger than your money, and the liquidation price is the point where the exchange takes it away. This is how it is worked out.
How this was made: an AI assistant drafted this guide under the operator's direction, and the numbers were checked against the calculators on this site. Nothing here is investment advice. Leveraged products can lose your entire margin.
The short answer
A liquidation price is the price at which an exchange closes your leveraged position by force, because the margin you put in can no longer cover your losses plus a minimum cushion called the maintenance margin. If you are long, it is below your entry price. If you are short, it is above.
Leverage lets you hold a position worth more than the money you put up. The money you put up is the margin. The exchange lends the rest, and to keep the loan safe it closes the position before your margin is gone.
Where the number comes from
Three quantities matter. The position value N is the entry price times the quantity. The initial margin is N divided by the leverage. The maintenance margin is a small share m of the position value, sometimes with a fixed amount subtracted, and it is the least margin the exchange lets you hold.
Your equity is the margin plus the unrealised profit or loss. The position is liquidated when the equity falls to the maintenance margin. For a long of Q coins at entry price E, that gives:
Liquidation price = (N − N ÷ L − c) ÷ (Q × (1 − m))
Take 0.1 BTC bought at 60,000 with 10x leverage and m = 0.5%. N is 6,000 and the margin is 600, so the liquidation price is (6,000 − 600) ÷ (0.1 × 0.995) = 54,271.36. The price has to fall 9.55% for it to happen. The liquidation price calculator does this for longs and shorts, with extra margin and cross margin.
Why your exchange may show a different number
- Mark price. Most exchanges compare the liquidation level with a mark price built from several markets, not the last trade, to stop a single odd trade from closing positions.
- Tiers. The maintenance margin rate is not one number. It rises in steps as the position grows, and some exchanges subtract a fixed amount for each step.
- Fees and funding. Fees to close, funding paid so far and open orders can all use up margin.
- Partial liquidation. Some exchanges reduce a large position in steps instead of closing all of it at once.
The number in your exchange's position panel is the one that applies. A calculator is for understanding it, for comparing ideas before you place an order, and for checking whether the panel makes sense.
How far away it is
The distance between the entry and the liquidation price shrinks as leverage rises. For a long at 60,000 with m = 0.5%:
- 2x: 30,150.75, which is 49.75% below the entry
- 5x: 48,241.21, which is 19.60% below the entry
- 10x: 54,271.36, which is 9.55% below the entry
- 25x: 57,889.45, which is 3.52% below the entry
- 50x: 59,095.48, which is 1.51% below the entry
- 100x: 59,698.49, which is 0.50% below the entry
At 100x the position is closed after a fall of about half a percent. That is a move ordinary price noise can cover, so a trader at that leverage is not really betting on direction; they are betting on the next few minutes.
What a liquidation costs
On isolated margin you lose the margin of that position. Some exchanges also take a liquidation fee out of what is left. If the market gaps past the bankruptcy price before the exchange can close the position, the shortfall is covered by an insurance fund, and if that is not enough the exchange can reduce winning positions on the other side, which is called auto-deleveraging.
A stop-loss order placed before the liquidation price closes the position while some margin is left. It can still slip in a fast market, and it is a different mechanism: you choose the price, instead of the exchange.
Rules differ by country
Leveraged crypto products are restricted in several places. The UK's FCA has banned the sale of crypto derivatives to retail consumers since 6 January 2021, and ESMA's product-intervention measures limited retail leverage on crypto CFDs to 2:1 in the EU. Check what applies where you live before you trade them.