What Is a Liquidation Price?

If you get liquidated, the market didn't stop you out. Your leverage did.

The liquidation price is where the platform stops waiting on you. The position has moved far enough against you that your margin barely covers it, so the platform closes it and keeps the margin. That's an exit you didn't choose, at a price that has nothing to do with your chart.

Chad has a short read on where leveraged traders get taken out. "Spot builds the move, and then leverage tends to get taken out before the real move. More times than not."

What's the actual liquidation price math?

On isolated margin, before fees and funding:

• Long: entry × (1 - 1/leverage + maintenance margin rate)
• Short: entry × (1 + 1/leverage - maintenance margin rate)

Maintenance margin is the minimum collateral the platform requires to keep a position open, often around half a percent of the position value. A long at 60,000 with 10x leverage and a 0.5% maintenance rate liquidates at about 60,000 × 0.905, which is 54,300. Without maintenance margin it would be 54,000. So the real level always sits a little closer than the quick 1/leverage estimate.

On cross margin there's no fixed number. It moves with your whole account balance and every other open position.

Closer than you think. Every time.

Same trade, two leverage settings: which liquidation price survives?

Illustrative numbers on an ETH short:

• Equal highs at 2,500. Price sweeps to 2,540, then closes back below 2,500. You short after the failure, at 2,488.
• The stop goes at 2,540, the high of the sweep. Back above it, the idea is wrong.
• $5,000 account, risking 2% ($100). The distance is 52, so size is about 1.92 ETH, roughly $4,780 of exposure.

At 5x on isolated margin, margin used is about $956 and liquidation sits near 2,973. Your stop at 2,540 is way inside that. If you're wrong, your plan closes the trade, at your price, for your $100.

At 50x, margin used is about $96 and liquidation sits near 2,525. That's BELOW your stop. A spike to 2,530, which your analysis says is still fine, wipes the position out before your stop ever gets touched. The idea wasn't wrong yet... the leverage killed it.

Same size. Same stop. The only thing that changed was leverage, and it moved the platform's exit in front of yours.

Where does the liquidation price fit in our process?

It doesn't. The stop is the plan. In the Decision Protocol, leverage gets chosen last, after the stop and the size are known, and it's set low enough that liquidation sits well past the invalidation level. We run isolated margin, so a liquidation can only ever take the margin on that one position.

Timeframe imposition feeds in too. A higher timeframe idea has a wider stop, so it needs lower leverage to keep liquidation out of the way. Chad's co-founder Niko Mercuris puts the mechanic in one line: "The higher your leverage, the closer your liquidation is to your entry."

And everybody else's liquidation price? That's liquidity. When a crowd is leveraged the same direction, their liquidations stack up on the chart, and a liquidity sweep through them is often where the equal lows strategy finds its entry. Their exit is your entry.

What do people get wrong about liquidation price?

"I don't need a stop, I'll just let it liquidate." It's the mistake Chad sees the most. Now your exit is set by leverage instead of the chart, and the whole margin goes every time. On cross margin it can take more than that.

The other one is adding margin to a losing trade to push liquidation further away. It feels like protection, right? It's the same thing as widening your stop: more money behind an idea the chart may already have proven wrong. Crypto gurus call that conviction. It sounds better than hope.

What liquidation price should you check right now?

Compare the liquidation price to the stop on every leveraged position you hold. If liquidation sits closer to price than the stop does, cut the leverage before the market makes the choice for you.

Keep going: crypto leverage trading, crypto leverage liquidation explained and crypto risk management.

Sources: the CFTC's customer advisory on virtual currency trading warns that leveraged traders can end up owing more than they put in, and Investor.gov explains that on a margin call the firm can close positions without notice to cover the shortfall.