How to Calculate Your Liquidation Price on a Leveraged Position

Where the formula comes from

Leverage of 10x means your own money covers a tenth of the position. Put differently, the position can lose one tenth of its value before your margin is gone — which is exactly a 10 percent adverse move. The 1 ÷ leverage term is nothing more than that fraction, and everything else in the formula is an adjustment to it.

The maintenance margin is the cushion the exchange refuses to let you spend, because closing a position takes time and slippage. It is why liquidation fires slightly before your margin actually reaches zero — at 10x with a 0.5 percent maintenance rate, at 9.5 percent adverse rather than 10 percent. On a small illiquid pair with a 2 percent maintenance rate, 10x liquidates at 8 percent.

Isolated and cross margin do not liquidate at the same place

In isolated margin, only the margin you assigned to that position can be lost, and the formula above applies directly. In cross margin, your whole account balance backs the position, so the liquidation price moves much further away — but a single bad trade can now take everything, including the funds you thought were reserved for other positions.

Adding margin to an open position pushes the liquidation price away, and so does reducing the position size. Neither changes the arithmetic — both simply lower the effective leverage, which is the only variable the liquidation price really depends on.

Why high leverage fails on volatility alone

At 100x, a 1 percent move liquidates. Major crypto pairs routinely swing more than that within a single hour, so a position at that leverage is not a directional bet at all — it is a bet that ordinary noise will not touch a price one percent away, which it usually will. The direction can be right and the position still gone before the move happens.

Regulators reached the same conclusion for retail products. In 2018 the European securities regulator capped retail contract-for-difference leverage at 30:1 for major currency pairs and 2:1 for crypto, precisely because retail accounts at high leverage were being closed out by normal price movement. Crypto derivatives venues outside that scope still advertise 100x and higher.

Frequently asked questions

Does a stop-loss protect me from liquidation?

Only if it triggers first. A stop placed well inside the liquidation price closes the position on your terms and at a loss you chose. A stop placed beyond it never fires, because the exchange liquidates before the market reaches your level. Set the stop from your risk budget, then check it sits inside the liquidation price — not the other way round.

Can I lose more than my margin?

On most crypto venues, no, because an insurance fund absorbs the gap when liquidation cannot close at the expected price. In extreme moves that fund can be exhausted, and some platforms then claw back part of the profits of winning traders. Read the platform's own rule on this before using leverage, since it varies.

Why did I get liquidated at a price the chart never reached?

Because liquidation is usually triggered by a mark price, an averaged index across several exchanges, not by the last trade on the chart you were watching. The mark price exists to stop a single venue's brief wick from liquidating everyone, but it also means your own exchange's candle is not the reference.