What is Liquidation Price?
Liquidation price is the mark price at which a leveraged perpetual futures position is automatically force-closed by the exchange because its remaining margin has fallen to the maintenance-margin threshold. Beyond this point, the collateral no longer covers potential losses, so the position is seized.
Liquidation price is the trigger level every leveraged trader must know before entering a perpetual futures position. When your position moves against you, unrealized losses eat into the margin backing the trade. Once the mark price reaches the point where remaining equity equals the maintenance margin, the exchange's liquidation engine steps in and force-closes the position — usually at a worse price than a voluntary exit, plus a liquidation fee. The position is gone and most or all of the isolated collateral is lost.
Crucially, exchanges evaluate liquidation against the mark price (a smoothed index-based fair value), not the last-traded price. This prevents a single thin-orderbook wick on one venue from wrongly liquidating traders. The two inputs that set the distance to liquidation are leverage and the maintenance-margin rate (MMR). Higher leverage pushes the liquidation price closer to your entry; a higher MMR — which exchanges raise for larger notional tiers — also shortens the runway.
Liquidation price is not a fixed number. It drifts as funding payments, added or removed margin, and realized PnL change your account equity. In cross-margin mode the liquidation point of one position depends on the equity of your entire account, so a winning trade elsewhere can push a losing leg further from liquidation. In isolated margin, only the collateral assigned to that single position counts.
For funding-rate arbitrageurs this number is central. A delta-neutral funding trade holds a long on one venue and an equal short on another, so directional price risk is netted out — but each leg is still individually leveraged. At high leverage the losing leg on any given day can sit uncomfortably close to its liquidation price even while the combined position is flat. If that leg liquidates, the trade is no longer delta-neutral and you are suddenly exposed to raw price direction. This is why arb desks watch per-leg liquidation buffers, keep leverage modest, and top up margin proactively rather than chasing an extra few points of funding APR.
Formula
Long liq price = Entry x (1 - 1/Leverage + MMR) Short liq price = Entry x (1 + 1/Leverage - MMR)
MMR is the maintenance-margin rate (e.g. 0.005 = 0.5%). This is the standard isolated-margin approximation ignoring fees; exact venue formulas add taker/liquidation fees and tiered MMR. Cross-margin uses whole-account equity instead of per-position collateral.
Worked example
- •Open a long on BTC at entry $100 (per unit) with 5x leverage.
- •Ignore MMR first for the clean case: Long liq = 100 x (1 - 1/5) = 100 x 0.80 = $80.
- •So a 20% drop wipes the 20% margin (1/5) and liquidates the position.
- •Now add a 0.5% maintenance margin: Long liq = 100 x (1 - 0.20 + 0.005) = 100 x 0.805 = $80.50.
- •Liquidation actually hits slightly earlier, at $80.50, because 0.5% must remain as maintenance margin.
- •Real BTC at $60,000 entry, 5x long, 0.5% MMR: liq = 60,000 x 0.805 = $48,300.
- •A short at $60,000, 5x, 0.5% MMR: liq = 60,000 x (1 + 0.20 - 0.005) = 60,000 x 1.195 = $71,700.
Long vs short liquidation
| Aspect | Long position | Short position |
|---|---|---|
| Price moves toward liq | Down | Up |
| Formula | Entry x (1 - 1/Lev + MMR) | Entry x (1 + 1/Lev - MMR) |
| Liq at 5x (0.5% MMR) | Entry x 0.805 | Entry x 1.195 |
| Liq at 10x (0.5% MMR) | Entry x 0.905 | Entry x 1.095 |
| Max loss before liq | ~ margin posted | ~ margin posted |
| Theoretical worst case | Price to $0 | Price rises unbounded |
FAQ
Is liquidation the same as a stop-loss?
No. A stop-loss is a voluntary order you set to exit at a chosen price to cap your loss, and you keep whatever margin remains. Liquidation is a forced closure the exchange triggers when margin hits the maintenance threshold — it happens automatically, often at a worse fill, and usually costs a liquidation fee on top. A stop-loss placed above your liquidation price is a way to avoid ever being liquidated.
Can my liquidation price change after I open a position?
Yes. It shifts whenever your position's margin or equity changes — adding collateral moves it further away, funding payments and realized losses move it closer, and in cross-margin mode the PnL of your other positions affects it too. Exchanges can also raise the maintenance-margin rate as your notional grows into a higher risk tier, which nudges the liquidation price toward your entry.
What happens to the money when a position is liquidated?
The liquidation engine closes your position in the market, and your posted margin absorbs the loss plus a liquidation fee. If the position closes better than the bankruptcy price, any surplus typically goes to the exchange's insurance fund; if worse, the insurance fund covers the shortfall. In extreme cases exchanges use auto-deleveraging (ADL) to close opposing traders' positions and settle the gap.
What is the safest leverage to avoid liquidation?
There is no risk-free leverage, but lower is safer because it widens the gap between entry and liquidation. At 2x a long needs a ~50% drop to liquidate; at 20x only ~5%. Many funding-rate arbitrageurs run 2x-3x per leg so ordinary volatility cannot liquidate them, then keep spare margin to add if a leg drifts toward its liquidation price.
Is it possible to have a liquidation price of $0?
Effectively yes for a long — at 1x leverage with no borrowing (fully collateralized), a long position has no liquidation price because the asset would have to fall to zero. Shorts can never reach $0 because price can rise without limit, so a short always has a finite liquidation price above entry no matter how low the leverage.
See liquidation price live across 36 exchanges.
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