Crypto liquidation explained

Initial and maintenance margin

Initial margin is what you post to open a position: position value divided by leverage. Maintenance margin is the smaller amount you must keep to hold it open, set by the exchange as a percentage of position value that rises with position size.

Losses come out of your margin. When what remains equals the maintenance margin, the position is liquidated.

Estimating the liquidation price

For an isolated-margin position, ignoring fees: a long is liquidated near entry × (1 − 1 ÷ leverage + maintenance rate), and a short near entry × (1 + 1 ÷ leverage − maintenance rate).

At 10× with a 0.5% maintenance rate, a long is liquidated about 9.5% below entry. At 50×, about 1.5% below. The higher the leverage, the less room the position has.

Mark price, not last price

Exchanges trigger liquidation on the mark price, a reference built from an index of spot prices, rather than on the last trade on their own book. This protects positions from a single abnormal print, but it also means the price on your chart is not exactly the one that decides.

What happens after

The exchange’s liquidation engine takes over the position and closes it. Some exchanges charge a liquidation fee on top. If the position cannot be closed at a price that covers the loss, an insurance fund absorbs the difference, and in extreme conditions profitable traders on the other side can be auto-deleveraged.

Keeping distance from it

None of these remove the risk. They change how much room a position has.

• Use lower leverage, so the liquidation price sits further from entry.
• Use a stop-loss well before the liquidation price; a stop costs a taker fee, a liquidation costs the margin.
• On isolated margin, a liquidation is limited to that position’s margin.
• Check the maintenance tier for your position size before sizing up.

Where to go next

Common questions