How your liquidation price is worked out: one formula and four traps

I've met more than one person whose first reaction after being liquidated was: "Hang on, I was on 10x and it only fell a bit over 9% — how is it all gone?" They hadn't miscalculated. They had never calculated at all. Going in, they were watching the profit multiple; the liquidation price was something they looked at properly for the first time when the system popped it on the screen. This piece explains how that line gets drawn: one formula, one distance table, four traps. By the end you'll at least know how far you are from the edge.

The ugly part first, as always: this article is about arithmetic and risk, not an invitation to trade futures. Leveraged futures are a high-risk derivative and can take your entire margin in a matter of minutes. Where this site stands is set out in why beginners should leave contracts and leverage alone — if you haven't read that one, read it first.

Where "10x means a 10% drop" goes wrong

The intuition runs like this: at 10x leverage your money is magnified tenfold, so if price moves 10% against you the margin is exactly used up and you're liquidated. It sounds tidy, but it leaves one thing out — the exchange doesn't wait until you have nothing left. Forced liquidation happens when your margin falls below the maintenance margin line, not when it reaches zero.

Term Maintenance margin: the minimum margin an exchange requires a position to keep, calculated as a percentage of the position's notional value (commonly 0.4%–1%, tiered by position size). The moment your margin is eaten down to that line, the system starts force-closing you.

So the real distance to liquidation = the theoretical distance (1/leverage) minus the slice that maintenance margin takes up. At low leverage that slice is a rounding error; turn the leverage up and it becomes the main act — because by then your theoretical distance is already paper-thin.

The formula: your liquidation price in one line

Ignore fees, assume isolated margin, and the formula looks like this:

Put a number through it: open a 10x long at 60,000 with the maintenance margin rate taken as 0.5% — liquidation price ≈ 60,000 × (1 − 0.1 + 0.005) = 60,000 × 0.905 = 54,300. That is a fall of about 9.5%, not 10%. The missing 0.5 of a percentage point looks trivial, but it scales with leverage: at 100x, 1/leverage is only 1%, and once you subtract 0.5%, your entire margin for error is 0.5%.

The real distance to liquidation at each multiple

Run the common multiples through the formula (long side, maintenance margin rate held at 0.5% throughout for a rough pass) and lay them out in a table:

Look at the last two rows. Bitcoin swinging 1–2% within a single day is routine, and altcoins move further. Which means a position above 50x doesn't need the market to go wrong, only the market to exist, to be swept off the board. That isn't a matter of luck. It's geometry.

Why the liquidation price the exchange shows differs from yours

Three reasons, all of them normal:

• The trigger is the mark price, not the last traded price. Mark price blends several spot indices so that nobody can spike one thin order book and set off liquidations on purpose. So sometimes the last price hasn't reached your line and the position is already gone — you were watching two different lines.
• The maintenance margin rate is tiered. The larger the notional value of a position, the higher the tier (0.4%, 0.5%, 1%… stepping up), so a large position's liquidation line sits closer to the entry price than a small one's.
• Cross and isolated margin are computed differently. Isolated counts only the margin on that one position; cross pulls your account balance and your other positions into the same sum, so unrealized loss on a single position can drag the whole account's liquidation line along with it.

So the formula in this piece is here to build a sense of magnitude: have a number in your head before you open. Once the order is placed, always go by the liquidation price the exchange shows you in real time — that's the figure with every rule baked into it.

Four traps worth avoiding

1. Work out the liquidation distance first, then choose the leverage — not the other way round. The right question isn't "how many times do I want to multiply my money," it's "how much does this instrument normally move, and how much room do I need." Your room has to cover the instrument's everyday swings; otherwise you aren't betting on direction, you're betting on the day being quiet.
2. Use isolated margin to ring-fence the damage. While you're learning, isolated margin caps a single loss at that position's margin. Cross margin's "mutual support" tends to become mutual drag for anyone who isn't practised.
3. Set alerts on the mark price. Put a price alert (on the mark price) some distance short of your liquidation line, so you have time to act on your own terms — closing deliberately and being force-closed cost very different amounts.
4. Don't top up margin to hold on. Adding margin as price closes in on the liquidation line is, at bottom, raising the stakes on a call that has already been shown wrong. The discipline of cutting a loss is worked through in how to set a stop loss, and it does far more for you than feeding a position to keep it alive.

One last time on where this site stands: everything above is self-defense knowledge for people who are going to touch futures anyway. For most beginners, position sizing plus spot is already enough to take part in this market — the leverage amplifier can wait until the day you no longer need to ask how a liquidation price is calculated. If you want to size a position of your own, run it through the site's position size calculator first.