Liquidation Price Explained: How to Calculate It With Leverage

Your liquidation price is the price at which the exchange force-closes a leveraged position because your remaining margin can no longer cover its losses. For an isolated long, a good approximation is entry x (1 - 1/leverage) / (1 - maintenance margin rate): at 10x with a 0.5% maintenance rate, a fall of about 9.5% wipes the position out. Higher leverage pulls that price closer, and fees and funding pull it closer still, so your stop-loss must always sit well inside it.

Initial and maintenance margin

• Initial margin is what you post to open a position: position value / leverage.
• Maintenance margin is the minimum equity the exchange requires to keep the position open, set as a percentage of position value, the maintenance margin rate (MMR). On major exchanges it is often around 0.4% to 0.5% for smaller BTC positions and rises in tiers for larger positions and riskier coins.

When losses reduce your equity in the position to the maintenance margin, the liquidation engine takes over and closes the position. In isolated margin you lose essentially all the margin you posted for that position.

The formula

For a linear (USDT-margined) contract in isolated margin, ignoring fees, with entry price E, leverage L and maintenance rate m:

Long liquidation price  ≈ E x (1 - 1/L) / (1 - m)
Short liquidation price ≈ E x (1 + 1/L) / (1 + m)

Exchanges use tiered maintenance rates, fees and their own formulas, and the number shown on your position screen is the one that counts. The formula is for planning and for understanding why leverage is so dangerous.

How leverage moves the liquidation price

A long opened at $60,000 with a 0.5% maintenance rate:

Leverage	Liquidation price	Fall needed to liquidate
2x	$30,151	49.7%
3x	$40,201	33.0%
5x	$48,241	19.6%
10x	$54,271	9.5%
20x	$57,286	4.5%
50x	$59,095	1.5%
100x	$59,698	0.5%

At 100x, a 0.5% move, which Bitcoin can make in minutes, ends the trade. Many altcoins move 10% in a normal day, so even 10x on them is closer to a coin toss than a plan. In practice exchanges also apply higher maintenance rates at high leverage, so the real distances can be even smaller.

Worked example: a 10x long

Worked example: a 10x short

Fees and funding move it closer

The simple formula assumes your margin stays untouched. In reality:

• Opening fees may be deducted from your margin. On the 10x example, a 0.05% taker fee on $10,000 is $5. With $995 of margin left, liquidation moves up to about $54,302.
• Funding payments in isolated margin are taken from the position's margin on many exchanges. If you pay $30 of funding over ten days, margin drops to $965 and liquidation rises to about $54,482, now only 9.2% below entry.
• Tiered maintenance rates: a larger position or a riskier coin carries a higher rate, pushing liquidation closer.

Cross margin works differently: the liquidation price depends on your whole futures balance and all your open positions. It may look far away, but one bad position can consume every dollar in the futures wallet.

Stops come first, liquidation never

A liquidation is not a stop-loss. It is the exchange closing a position you failed to close yourself, usually at the worst moment and with extra fees. The rule is simple: decide your loss with the stop and the position size; choose leverage low enough that liquidation is far beyond the stop.

A liquidation checklist

1. Calculate position size from the stop, not from the leverage slider.
2. Use isolated margin and the lowest leverage that gives the margin efficiency you need; 1x to 3x covers most planned trades.
3. Check the liquidation price on the exchange screen before confirming. It should be far beyond your stop.
4. Set a reduce-only stop immediately after the position opens.
5. Recheck the liquidation price after several days of funding.

Next, see why the numbers in this lesson explain so many blown accounts in Why Most Leveraged Traders Lose.