Every leveraged futures position has a price at which the exchange closes it by force. That is the liquidation price. It is not arbitrary: it follows from how much margin backs the position, how large the position is, and the exchange's minimum margin requirement. This article walks through that relationship using simple hypothetical numbers.
Margin, leverage and position size
Leverage is the ratio between the position size (its notional value) and the margin behind it. With 100 USDT of margin at 10x, the position is worth 1,000 USDT. The same 100 USDT at 20x controls 2,000 USDT.
Margin is the cushion that absorbs losses. As price moves against the position, the unrealised loss eats into that cushion. Exchanges also require a minimum amount to keep a position open, called the maintenance margin. When the cushion shrinks to that minimum, the position is liquidated. The distance to liquidation is therefore roughly the initial margin minus the maintenance margin, measured against the position size.
For an isolated-margin position, a common simplified approximation is:
- Long: liquidation price ≈ entry × (1 − 1/leverage + maintenance margin rate)
- Short: liquidation price ≈ entry × (1 + 1/leverage − maintenance margin rate)
Real exchanges use their own formulas and parameters, so treat this as a way to build intuition, not as a calculator.
Worked example (hypothetical illustration)
Assume an isolated-margin long on a made-up asset, entered at 100 USDT with 100 USDT of margin. Assume a maintenance margin rate of 0.5% of the position size, and ignore fees and funding. These are example numbers only, not the parameters of any real exchange or instrument.
- 5x: position 500 USDT, liquidation ≈ 80.5, buffer ≈ 19.5%
- 10x: position 1,000 USDT, liquidation ≈ 90.5, buffer ≈ 9.5%
- 20x: position 2,000 USDT, liquidation ≈ 95.5, buffer ≈ 4.5%
- 50x: position 5,000 USDT, liquidation ≈ 98.5, buffer ≈ 1.5%
Take the 10x row. The maintenance margin is 0.5% of 1,000 = 5 USDT, so the position can lose about 95 USDT before liquidation. That is 9.5% of the position size, which puts the liquidation price near 90.5. A short with the same numbers mirrors this above the entry, at roughly 109.5.
Why the buffer shrinks faster than leverage seems to grow
In this simplified model the buffer is roughly 1/leverage minus the maintenance rate. Two things follow from that.
First, doubling leverage more than halves the buffer. Going from 5x to 10x cuts it from 19.5% to 9.5%. Going from 20x to 50x cuts it from 4.5% to 1.5%.
Second, leverage multiplies how much of your margin a price move consumes. A 1% adverse move on a 1,000 USDT position is a 10 USDT loss, or 10% of the 100 USDT margin. On a 2,000 USDT position, the same 1% move costs 20 USDT, or 20% of the margin. The fixed maintenance requirement also takes a bigger relative bite as leverage rises. At a hypothetical 100x, the margin is 1% of the position and the maintenance margin is 0.5%, so only 0.5% of room is left.
Crypto prices can move several percent in a short time, so a buffer of one or two percent leaves very little room for ordinary volatility. Higher leverage is not free extra exposure. It is a direct trade of buffer for size.
What the simple math leaves out
Real liquidation prices differ from the textbook figure for several reasons:
- Mark price: exchanges typically trigger liquidation from a mark price, not the last traded price, so a brief wick on one order book may not matter while a sustained move does.
- Fees and funding: trading fees and funding payments reduce the margin cushion over time and pull liquidation closer.
- Tiered requirements: larger positions often face higher maintenance margin rates.
- Margin mode: in cross margin, the wider account balance backs the position, which changes the calculation.
- Changes after entry: adding margin to an isolated position, or reducing its size, moves the liquidation price further from the current price.
The exchange's own position screen shows the actual liquidation price, so use that figure and use formulas like the one above only to understand how it moves. This article is educational, not financial advice, and leveraged trading carries a high risk of loss, up to the entire margin in a position.
BitMe monitors your futures positions on Bybit, OKX and BloFin around the clock and can send a Telegram alert when the share of margin used signals rising liquidation risk. Alerts only inform, they never close positions. See how liquidation and stop-loss alerts work; BitMe is free during the beta period.