If you trade perpetual futures or margin, the single number you should know before you click "open" is your liquidation price: the price at which the exchange closes your position because your margin can no longer cover the loss. This guide walks through the formula, shows worked examples for longs and shorts, and explains why the real number on your exchange can differ slightly from a back-of-the-envelope calculation.
What liquidation actually means
When you open a leveraged position, you only put up a fraction of the position's value as initial margin. With 10x leverage, you post 10% of the notional value. The exchange also requires you to keep a minimum amount of margin in the position, the maintenance margin. When losses eat your margin down to that maintenance level, the liquidation engine takes over the position.
So liquidation is not "when you lose 100% of your margin". It happens a little before that, because the exchange keeps the maintenance margin as a buffer to close you out without the account going negative.
The simplified liquidation price formula
For an isolated-margin position, ignoring fees and funding, a widely used approximation is:
- Long: Liquidation price = Entry × (1 − 1/Leverage + Maintenance margin rate)
- Short: Liquidation price = Entry × (1 + 1/Leverage − Maintenance margin rate)
Where:
- Entry is your average entry price.
- 1/Leverage is your initial margin rate (10x → 10%, 50x → 2%).
- Maintenance margin rate (MMR) is the exchange's minimum margin rate for your position size tier, for example 0.5%.
The intuition: a long loses money as price falls. Your margin is 1/Leverage of the position, so price can fall roughly that percentage, minus the maintenance buffer, before liquidation.
Worked example 1: a 10x BTC long
You buy BTC at $60,000 with 10x leverage. The maintenance margin rate for your tier is 0.5%.
- Initial margin rate = 1/10 = 10%
- Distance to liquidation = 10% − 0.5% = 9.5%
- Liquidation price = 60,000 × (1 − 0.10 + 0.005) = 60,000 × 0.905 = $54,300
A 9.5% drop wipes the position. That is a move BTC can make in a day.
Worked example 2: the same trade at 50x
Now the same entry at 50x:
- Initial margin rate = 1/50 = 2%
- Distance to liquidation = 2% − 0.5% = 1.5%
- Liquidation price = 60,000 × (1 − 0.02 + 0.005) = 60,000 × 0.985 = $59,100
A 1.5% move against you ends the trade. Normal intraday noise is often bigger than that, which is why very high leverage gets liquidated so often even when the trader's direction was eventually right.
Worked example 3: a 10x short
You short at $60,000 with 10x and a 0.5% MMR:
Liquidation price = 60,000 × (1 + 0.10 − 0.005) = 60,000 × 1.095 = $65,700
For a short, the liquidation price sits above your entry, because you lose as price rises.
Quick reference table
Entry $60,000, MMR 0.5%, isolated margin, no fees:
| Leverage | Initial margin | Long liquidation | Short liquidation | Move to liquidation |
|---|---|---|---|---|
| 2x | 50% | $30,300 | $89,700 | 49.5% |
| 5x | 20% | $48,300 | $71,700 | 19.5% |
| 10x | 10% | $54,300 | $65,700 | 9.5% |
| 20x | 5% | $57,300 | $62,700 | 4.5% |
| 50x | 2% | $59,100 | $60,900 | 1.5% |
| 100x | 1% | $59,700 | $60,300 | 0.5% |
Notice how the distance to liquidation shrinks almost linearly with 1/Leverage. Doubling leverage roughly halves the room you have.
Want to plug in your own numbers? Use the free liquidation price calculator. It runs in your browser and shows the distance from entry as well.
Why your exchange shows a slightly different number
The formula above is an estimate. Real liquidation prices move because of:
- Fees. Opening fees, and the estimated closing fee some exchanges reserve, reduce your effective margin and pull the liquidation price closer.
- Funding payments. On perpetual futures, paying funding reduces the margin in an isolated position over time.
- Tiered maintenance margin. Larger positions fall into tiers with a higher MMR, which moves liquidation closer. Many exchanges also subtract a "maintenance amount" per tier.
- Mark price vs last price. Exchanges usually liquidate based on a mark price (often derived from an index), not the last traded price on their own order book.
- Cross margin. In cross mode, your whole account balance backs the position, so the liquidation price depends on your free balance and other open positions. The isolated formula does not apply.
- Adding margin. If you add margin to an isolated position, the effective leverage drops and the liquidation price moves away from entry.
Always treat the exchange's displayed liquidation price as the source of truth, and use the formula to sanity-check it and to plan before you open the trade.
Leverage does not decide your risk. Your stop does.
A common mistake is choosing leverage first and asking "where will I get liquidated?" second. A better process:
- Decide where your trade idea is wrong. That's your stop-loss.
- Decide how much of your account you're willing to lose if the stop is hit, for example 1%.
- Calculate the position size that loses exactly that amount at the stop.
- Only then pick leverage, low enough that the liquidation price sits comfortably beyond your stop.
If your liquidation price is closer than your stop, the exchange will close you before your own plan does. The position sizing formula guide walks through step 3 in detail, and the leverage & margin calculator shows the margin needed for a given position.
Worked example 4: putting it together
Account: $5,000. Risk per trade: 1% = $50. Long BTC at $60,000, stop at $58,800 (2% below entry).
- Position size = $50 ÷ 2% = $2,500 notional (about 0.0417 BTC).
- With 5x leverage, margin required = $2,500 ÷ 5 = $500.
- Liquidation at 5x with 0.5% MMR = 60,000 × (1 − 0.20 + 0.005) = $48,300, far below the $58,800 stop.
The trade risks $50 whatever leverage you pick. Leverage only changes how much margin is locked up and how far away liquidation is. Here, 5x keeps liquidation well clear of the stop. At 50x, liquidation would be at $59,100, above the stop, so the position would be liquidated before the stop could trigger.
Common questions
Does higher leverage mean bigger profits? Only relative to the margin you post. Your profit in dollars depends on position size, not leverage. Leverage just lets you hold the same position with less margin, and it moves liquidation closer.
Can I lose more than my margin? In isolated mode the exchange's liquidation system is designed to stop losses at your position margin, although extreme gaps can still cause losses beyond it on some venues. In cross mode, your whole account balance is at risk.
What maintenance margin rate should I use? Check your exchange's margin tier table for your contract and position size. 0.4–0.5% is common for the smallest BTC tiers on major venues, but it differs by exchange and asset, so look it up instead of guessing.
Make it a habit
Before every leveraged trade, write down the entry, stop, size, leverage and liquidation price. A trading spreadsheet that calculates position size and risk for every trade turns this into a 10-second routine instead of mental math under pressure.