Your Liquidation Price Is Closer Than You Think

Most traders carry a rough idea in their head: ten times leverage means a ten percent move against me wipes the position. It is close enough to sound safe, and wrong in the direction that costs money. The real number is smaller, and you can calculate it in under a minute.

This article is a worked example. Run it once with the numbers below, then run it again with your own — that second pass is the point.

The formula

For an isolated long position:

Liquidation price ≈ Entry × (1 − 1/Leverage + Maintenance margin rate)

Three inputs, all knowable before you open the trade. Maintenance margin rate is published by the venue and typically starts around 0.5% for major pairs, rising with position size.

Worked example

You post $1,000 of margin at 10× on BTC at an entry of $60,000.

• Position size: $1,000 × 10 = $10,000, which is 0.1667 BTC
• 1/Leverage = 0.10
• Maintenance margin rate: 0.005

Liquidation price = 60,000 × (1 − 0.10 + 0.005) = 60,000 × 0.905 = $54,300

That is a 9.5% move against you, not 10%. The gap looks trivial until you notice where it sits: exactly in the range where price spends most of its time.

Now add what the formula leaves out. Trading fees come out of your margin the moment you open. Funding is charged while you hold. Both push the liquidation price closer to the entry, not further away. In practice the honest number is nearer 9.2–9.3% than 9.5%.

The part that surprises people

Change nothing except leverage and watch the distance collapse:

| Leverage | Distance to liquidation | |---|---| | 5× | ≈ 19.5% | | 10× | ≈ 9.5% | | 20× | ≈ 4.5% | | 50× | ≈ 1.5% |

Between 20× and 50× the distance falls to a third. At 50× an ordinary hourly candle on a major pair can be enough. Nothing unusual has to happen — the market only has to breathe.

Isolated versus cross

Everything above assumes isolated margin: only the margin assigned to that position is at risk. Under cross margin the whole account balance backs the position, so the liquidation price sits much further away — and that is not the reassurance it appears to be. The position survives longer, and when it finally goes, it takes the account with it rather than one slice of it.

Neither mode is safer by itself. Isolated caps the damage per trade. Cross caps the number of times you get to be wrong at all.

Do this before the next trade

1. Calculate the liquidation price with the formula — before entry, not after.
2. Compare it to the recent daily range of the instrument. If a normal day reaches it, the size is wrong, not the idea.
3. Place a stop well inside that level. A liquidation is not an exit; it is what happens when you did not choose one.

Liquidation is the only price on the screen that the exchange controls completely. Everything else is negotiable with the market — that one is not.