Mastering Margin: How to Calculate Your True Liquidation Price

Trading cryptocurrency with leverage allows you to control large positions with a relatively small amount of capital. While this can magnify your profits, it simultaneously magnifies your losses. The ultimate catastrophic consequence of a losing leveraged trade is Liquidation.

What is Liquidation?

When you open a leveraged position, you are borrowing funds from the exchange. To protect themselves from a scenario where your losses exceed your initial deposit (your margin), the exchange sets a strict Liquidation Price.

If the market price of the asset hits your liquidation price, the exchange's risk engine automatically closes your position, sells your collateral at market price to repay the borrowed funds, and you lose 100% of the money you put into that specific trade.

The Core Math Behind Liquidation

A common beginner mistake is assuming liquidation math is uniquely simple based on leverage.

• "If I use 10x leverage, a 10% move against me liquidates me."
• "If I use 50x leverage, a 2% move against me liquidates me."

This is generally true as a baseline approximation, but it fails to account for a critical variable: the Maintenance Margin Rate (MMR).

Exchanges don't wait until your account hits exactly $0.00 to close your trade. They close it slightly early to guarantee they can cover the fees and market slippage during the forced liquidation.

Why Maintenance Margin Matters

The Maintenance Margin is the minimum amount of equity you must maintain to keep a position open. For example, if Binance has a 0.4% MMR for Bitcoin futures, your position will be liquidated before you lose 100% of your initial margin—you will be liquidated when your margin drops to 0.4% of the total position size.

This means your true liquidation price is always slightly "tighter" (closer to your entry price) than the simple math suggests. In highly volatile markets, that fraction of a percent is the difference between surviving a wick and losing your entire account.

Never Guess Your Liquidation Point

Professional traders never cross their fingers and hope for the best. You must know your exact liquidation price, down to the cent, before entering a trade.

By using an advanced tool like our Liquidation Price Calculator, you can instantly input your entry price, leverage size, and the exchange's maintenance margin. The tool runs the complex algebra for both Long and Short positions, providing your exact invalidation level.

Always ensure your predefined Stop Loss order is set comfortably above (if Long) or below (if Short) this liquidation price to avoid devastating exchange liquidation penalties!