Glossary
What Is the Liquidation Price and How to Calculate It
The exchange force-closes the position when the margin can no longer hold it. It uses the mark price; with a proper stop it never gets that far.
How it works
For isolated margin on a USDT-margined contract, the first-level liquidation price is roughly: for a long — entry price × (1 − 1/leverage) ÷ (1 − MMR); for a short — entry price × (1 + 1/leverage) ÷ (1 + MMR), where MMR is the maintenance margin rate the exchange sets for that position size. The higher the leverage, the closer the liquidation price sits to entry.
This is an approximation: the actual liquidation price on a given exchange shifts further from opening and closing fees and accumulated funding on perpetual contracts, which gradually eat into available margin and pull liquidation slightly closer to the current price than the base formula suggests.
Understanding liquidation mechanics matters even for traders who use a stop-loss: if a market stop doesn't fill in time during a sharp gap or thin liquidity, it's the liquidation price, not the planned stop, that ends up determining the actual loss on the position.
Example
Long entry at 100, leverage 10×, MMR 0.5%. Liquidation ≈ 100 × (1 − 1/10) / (1 − 0.005) = 100 × 0.9 / 0.995 ≈ 90.45. For a short at the same parameters: 100 × (1 + 1/10) / (1 + 0.005) = 100 × 1.1 / 1.005 ≈ 109.45.
Common mistake
A common mistake is assuming a stop-loss fully replaces the need to track liquidation price. During a sharp market move, a stop can fail to fill at its set price, and liquidation — triggered by margin running out — can produce a bigger loss than planned.
Read next
Related terms
Frequently asked questions
- Do fees affect the liquidation price?
- Yes, trading fees and accumulated funding on perpetual contracts gradually reduce available margin and pull liquidation closer to the current price.
- How does isolated margin differ from cross margin for liquidation?
- With isolated margin, only that position's margin is on the line for liquidation; with cross margin, the whole account balance is available, changing both the liquidation level and its consequences.
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