A liquidation is the exchange closing your leveraged position for you, at a price you did not choose, because your margin ran out. It is not a stop-loss, it is not a warning, and it is not a judgment on whether your view was right — it is pure arithmetic: the price got too far from your entry for the collateral you posted to still cover it. It is also the most common way leveraged crypto accounts die, and the good news is that the price at which it happens is a number you can calculate before you enter the trade.
This guide does exactly that: the formula, a worked BTC example in both directions, why the buffer shrinks in direct proportion to leverage, how maintenance margin and fees quietly eat into it, and how to move the liquidation price further away — and why your stop-loss has to sit in front of it.
What liquidation actually is
When you trade on margin, you post a fraction of the position value as collateral (your margin) and the exchange lends the rest. Your equity in the position is then:
- Long: collateral + (current price − entry) × position size
- Short: collateral + (entry − current price) × position size
The exchange requires your equity to never fall below a maintenance margin — a buffer that protects the exchange's loan, not you. The moment equity drops to that level, the position is liquidated: a forced market close, typically with a liquidation fee on top. Because it is a market order executed by the engine at a moment of fast price movement, the fill can land meaningfully worse than the printed liquidation price — slippage is part of the cost of arriving here.
Two consequences follow. First, the maximum loss is your collateral (isolated margin) or, in cross margin, potentially the whole account — not the position value. Second, a long liquidates when price falls and a short liquidates when price rises. Direction matters, but the mechanism is identical: it is a function of how far price has moved, not of whether the trade is "good".
The liquidation price formula
The liquidation price is the price at which your equity equals the maintenance margin. Solving that equation gives the standard formula:
Long: liquidation price = entry × (1 − (collateral − fees) / position size + maint margin)
Short: liquidation price = entry × (1 + (collateral − fees) / position size − maint margin)
- Entry price — where the position was opened
- Position size — the notional value you are exposed to (e.g. $100,000 of BTC)
- Collateral — the margin you posted; with full margin at leverage L, collateral = position size / L
- Maintenance margin — the fraction of the position the exchange keeps as a floor (often 0.5% at small sizes, tiered upward)
- Fees — taker fees and liquidation fees, which reduce the collateral available
The most useful special case: when you use full collateral at leverage L, the ratio (collateral / position size) is exactly 1/L, so the formula collapses to entry × (1 ∓ 1/L ± maint margin) — your buffer is, to first order, one over leverage. 10x buys you roughly a 10% move; 50x buys you roughly 2%.
One honesty note: this is the standard approximation. Real exchange numbers differ slightly because liquidations trigger on the mark price (a smoothed index, less wick-sensitive than last price), because maintenance margin is tiered — bigger positions sit in higher mm tiers — and because fees and the insurance fund handling vary by venue. The formula gets you within the right dollar range; the exchange's own pre-entry estimate is the final word.
Worked example
BTC long: entry $50,000, 10x leverage, position size $100,000, collateral $10,000, maintenance margin 0.5%, fees $0:
- Liquidation price = 50,000 × (1 − 10,000/100,000 + 0.005) = 50,000 × 0.905 = $45,250
- Distance to liquidation = (50,000 − 45,250) / 50,000 = 9.5% — a 10% drop less the 0.5% maintenance margin
- P&L at liquidation = (45,250 − 50,000) / 50,000 × 100,000 = −$9,500: you lose all but the 0.5% that remains as maintenance margin
The short uses the mirror formula: same inputs, entry $50,000, and the liquidation price lands above entry — 50,000 × (1 + 0.1 − 0.005) = $54,750, again 9.5% away. The leverage is the whole story: with everything else fixed, here is the distance at each level (long, 0.5% mm):
- 2x → liquidates at $25,250, 49.5% away
- 3x → $33,583, 32.9% away
- 5x → $40,250, 19.5% away
- 10x → $45,250, 9.5% away
- 20x → $47,750, 4.5% away
- 50x → $49,250, 1.5% away
Why leverage is the dominant variable
Because the buffer scales as 1/L, leverage is not a "you earn 10x faster" dial — it is a distance-to-death dial. Going from 5x to 10x does not double your risk per point; it halves the price movement you can absorb before the exchange takes over. And crypto routinely moves 5% in an hour on ordinary days: at 20x, a 5% wick is a liquidation, and at 50x, 1.5% of noise plus spread plus fees is a loss of the entire collateral.
There is a second-order effect that makes it worse in practice. Liquidations are market orders, so a cluster of positions liquidating at similar prices adds volume in the direction of the move — which pushes the price further — which triggers the next cluster. Exchanges spread this out with the insurance fund and mark price, but the mechanical point stands: the closer your liquidation price is to the market, the more likely you are in the crowd that gets run over. High-leverage liquidations are not an even random risk; they concentrate exactly where the price is already going.
How to move the liquidation price further away
Every lever on the formula works in your favor if you pull it the right way:
- Add collateral. In the formula, each extra dollar of margin pushes the liquidation price by entry/position size dollars in your favor. On the 10x example above, adding $1,000 of collateral moves $45,250 → $44,750 — a full extra 1% of distance for 10% more margin. This is the single highest-leverage improvement available.
- Lower the leverage. The same as adding collateral, expressed as 1/L: 20x → 10x doubles the buffer from 4.5% to 9.5% without touching a single extra dollar.
- Useisolated margin for position caps. Isolated margin caps the loss at the posted collateral; cross margin draws on the whole account's free margin, which pushes the liquidation price further away but raises the maximum loss to the account. The right choice depends on whether you are optimizing for "I lose this position" or "I lose less often".
- Account for carrying costs. A leveraged position held for days pays funding fees every 8 hours; those fees come out of the same collateral buffer, slowly walking the liquidation price toward you. The Funding Rate Calculator tells you what that carry actually costs at the current rate.
- Size the position from your risk budget, not from your ambition. The position size in the formula is the variable that connects liquidation risk to account risk — the position sizing calculator and the position sizing guide do that math from a stop instead, which is the cleaner way to do it (next section).
The habit that matters most: treat the liquidation price as a number you choose at entry. Compute it before you open the trade, note the distance, and decide whether that distance survives your worst realistic day. If the answer is "a 4% wick", the trade is already liquidation-risk, not directional-risk.
Using the liquidation price calculator
The Crypto Liquidation Calculator takes entry price, leverage, position size, collateral, direction (long/short), maintenance margin % and fees, and returns:
- Liquidation price — from the formula above
- Distance — the % of price movement to liquidation, color-coded: red under 10%, yellow under 25%, green beyond
- Max loss — the collateral at stake (isolated model)
- P&L at liquidation — what the position is actually worth at that price, which is slightly better than the full collateral because the maintenance margin remains
- A leverage comparison table — the same position at 2x, 3x, 5x, 10x, 20x and 50x, so you can see the 1/L effect directly
If the distance comes out under 10%, the calculator flags it as dangerous — that is the band where ordinary intraday volatility does the job for you. Enter the exchange's maintenance margin tier for your position size (the 0.5% default is the small-size tier; large positions sit in higher tiers, which pulls the liquidation price closer). Everything runs client-side; nothing is transmitted. For the sizing side of the same decision — how big a position your account can afford — the Position Size Calculator is the companion tool.
Liquidation vs stop-loss
A stop-loss is an exit you set at a price you chose. A liquidation is an exit the exchange sets at a price the market decides, with a fee on top and no ability to choose the venue of the fill. The only sane relationship between the two: your stop must sit in front of your liquidation price, with room to spare. A common working rule is to stop at roughly half the distance to liquidation, so the exit happens on your terms before the buffer is half consumed. The Stop Loss & Take Profit Calculator turns such a level into the exact exit price, your risk and reward in dollars, and the break-even price.
In practice that means the liquidation price is your worst-case reference and the stop is the exit you actually live with. Set the stop from structure or volatility — a ATR-based stop is the standard approach — check that it clears the liquidation price, and then size the position from that stop with the position sizing formula so a stop-out costs you your planned 1–2% rather than the full collateral. If the stop that your analysis demands sits behind your liquidation price, the honest answer is that the position is too big or the leverage too high — fix one of those before entering. And once both numbers are set, the Risk/Reward Calculator closes the loop by checking that your target still pays for the risk you just defined.