How the liquidation price in futures is calculated
The liquidation price is the price at which the exchange closes your position because there is no margin left to keep it open. Knowing it before you open is the difference between a trade that goes wrong and an account that disappears. This is how to calculate it by hand.
By Bárbara Ruiz·Updated ·5 min read
What exactly the liquidation price is
When you open a position with leverage, you put up margin. If the price moves against you, the losses come out of that margin. When what’s left reaches the maintenance margin (the minimum the exchange requires to keep the position open), the system closes it for you. The price at which that happens is the liquidation price.
The exchange calculates it with the mark price, an average across several markets, and not with the last traded price. That way a one-off wick on a single exchange doesn’t liquidate everyone.
The formula, for longs and for shorts
The liquidation price of a long sits below your entry, and that of a short above it, at a distance set mainly by the leverage. In isolated margin, and leaving fees aside, the calculation fits on one line:
- Long: liquidation = entry price × (1 − 1 / leverage + maintenance margin)
- Short: liquidation = entry price × (1 + 1 / leverage − maintenance margin)
The maintenance margin goes in as a decimal: 0.5% is 0.005. It is usually between 0.4% and 1% for small positions on the major pairs, and it rises with the position size. The one that applies to you is in your exchange’s risk tier table. To skip the maths, the liquidation price calculator uses this same formula.
Examples with numbers
With an entry at 60,000 USDT and a maintenance margin of 0.5%, a long at x10 is liquidated at 54,300 USDT, 9.5% below; at x20, at 57,300 USDT, just 4.5% away. Shorts work the same way, upwards:
| Position | Leverage | Calculation | Liquidation | Distance |
|---|---|---|---|---|
| Long | x10 | 60,000 × (1 − 0.1 + 0.005) | 54,300 USDT | −9.5% |
| Short | x10 | 60,000 × (1 + 0.1 − 0.005) | 65,700 USDT | +9.5% |
| Long | x20 | 60,000 × (1 − 0.05 + 0.005) | 57,300 USDT | −4.5% |
| Short | x20 | 60,000 × (1 + 0.05 − 0.005) | 62,700 USDT | +4.5% |
Doubling the leverage doesn’t bring liquidation a little closer: it leaves it at less than half the distance.
And in cross margin
In cross margin, the position uses all the free balance in your futures account as a buffer. Liquidation is further away, and it moves: if you open another position or withdraw funds, it changes. The formula above no longer works, because it depends on everything you hold in the account. There, the figure that counts is the one the exchange shows you on the open position.
Liquidation being further away in cross margin doesn’t mean you are risking less: if it comes, it can take the entire balance of your futures account, not just that position’s margin.
Why your exchange gives a slightly different figure
The figure your exchange shows almost never matches the formula to the cent, because the exchange takes into account things the simple formula leaves out. The differences are small, but it helps to know where they come from:
- It deducts the closing fee it would charge when liquidating you, and that brings liquidation slightly closer.
- The maintenance margin rises in tiers with the position size.
- If you add margin or are charged the funding rate, the margin changes and liquidation moves.
Use the formula to get the order of magnitude before you open, and the exchange’s figure to decide.
How to push liquidation further away
To push the liquidation price further away you have four levers: lower the leverage, add margin, set a stop loss before liquidation or reduce the position size. Lowering the leverage is the one that gains the most distance.
- Lower the leverage. Nothing pushes it further away: from x20 to x5, the distance goes from under 5% to under 20%.
- Add margin to the open position (almost every exchange allows this in isolated margin).
- Set a stop loss well before liquidation. If the stop is hit, you close with a loss you chose; if liquidation comes, you choose nothing. More on this in stop loss and take profit.
- Reduce the size of the position: with the same margin and a smaller size, the effective leverage drops.
Frequently asked questions
What happens when you get liquidated?
The exchange closes the position at market price and you lose the margin assigned to it. In cross margin it can affect the balance of the whole futures account.
Does the liquidation price change while the position is open?
Yes: if you add or remove margin, if you pay or receive the funding rate, or, in cross margin, if the account balance changes.
Does a stop loss prevent liquidation?
If you set it before the liquidation price and it executes, yes: you close earlier, with the loss you chose. In very sharp moves a stop market order can execute at a worse price than expected.
Why are there liquidations if the chart never reaches that price?
Because liquidation is calculated with the mark price, not the last price on the chart, and because fees and funding may have reduced your margin.