Liquidation occurs when the exchange automatically closes your leveraged position because your margin balance has fallen below the maintenance margin requirement. It's the automated equivalent of a margin call followed by a forced stop-out — the exchange closes your position to prevent your balance from going negative. Liquidation is particularly relevant in crypto trading, where high leverage (up to 125:1 on some exchanges) makes it a constant risk.
How Liquidation Price Is Calculated
The liquidation price depends on your entry price, leverage, and the maintenance margin rate required by the exchange. Simplified formula for a long position:
Liquidation price ≈ Entry price × (1 − 1/Leverage + Maintenance margin rate)
Example: Long BTC at $60,000 with 10× leverage and 0.5% maintenance margin rate. Liquidation price ≈ $60,000 × (1 − 0.10 + 0.005) = $60,000 × 0.905 = $54,300. If BTC falls to $54,300, your position is liquidated.
Use the Liquidation Price Calculator for precise calculations that account for your specific margin balance and exchange parameters.
Partial vs Full Liquidation
Some exchanges use partial liquidation — they close a portion of your position to bring your margin ratio back above the minimum, allowing you to keep part of the position. Others liquidate the entire position at once. Binance and most major exchanges use partial liquidation for larger positions.
How to Avoid Liquidation
- Use lower leverage: At 3× leverage, your liquidation price is 33% away from entry. At 20× leverage, it's 5% away. More leverage means less room for normal price fluctuations before liquidation.
- Set a stop loss well before the liquidation price: Never allow the market to liquidate your position. A stop loss at 50% of the distance to liquidation closes the trade on your terms, not the exchange's.
- Monitor your margin ratio: Most exchanges display your margin ratio in real time. Add margin or reduce position size before the ratio approaches the maintenance margin threshold.