Liquidation happens when your losses equal your margin. The exchange closes your position forcefully — and you lose your entire margin deposit.
The Formula (Isolated Margin)
Long: Liq Price = Entry × Leverage / (Leverage + 1 − MMR × Leverage)
Short: Liq Price = Entry × Leverage / (Leverage − 1 + MMR × Leverage)MMR = Maintenance Margin Rate (typically 0.4–0.5% on major exchanges)
Example: BTC Long at 20× Leverage
- Entry: $65,000
- Leverage: 20×
- MMR: 0.5%
Liq Price = 65,000 × 20 / (20 + 1 − 0.005 × 20)
= 1,300,000 / (20.9)
≈ $62,200A drop of only 4.3% from entry wipes the entire position.
Why You Need a Stop-Loss Above Liquidation
By the time you hit liquidation price, your position has already absorbed a forced liquidation fee (typically 0.5–1% of notional). Set your stop-loss at 40–60% of the distance to liquidation, so you control the exit — not the exchange.
Cross vs. Isolated Margin
In isolated margin, only the margin allocated to that specific position is at risk. In cross margin, the exchange uses your entire account balance as collateral — liquidation price is harder to predict and can affect all open positions simultaneously.
For beginners, isolated margin is safer: you know exactly how much you can lose.