How Liquidation Price Is Calculated (With Worked Examples)

Liquidation is the moment a leveraged position is force-closed because its margin can no longer cover losses. The liquidation price is exactly where that happens — and for isolated margin, it's fully knowable in advance. Here's the math.

The simplified formula (isolated margin)

For an isolated-margin position, a useful simplified estimate is:

• Long: Liq ≈ Entry × (1 − 1/Leverage + MMR)
• Short: Liq ≈ Entry × (1 + 1/Leverage − MMR)

where MMR is the maintenance margin rate — the minimum margin the venue requires to keep the position open. Exchanges publish full formulas that also fold in fees; Bybit's, for example, accounts for the estimated fee to close the position and a maintenance-margin deduction (Bybit: isolated liquidation, Bybit: maintenance margin).

A worked example

Say you go long BTC at an entry of $67,500 with 10x leverage and a maintenance margin rate of 0.5%:

Liq ≈ 67,500 × (1 − 1/10 + 0.005) = 67,500 × 0.905 = $61,087.50

So a drop of about 9.5% wipes out the position. Note the pattern: at 10x, roughly a 10% adverse move liquidates you; at 20x, ~5%; at 50x, ~2%. The maintenance margin rate shaves that threshold slightly closer.

Try it

Change the leverage and maintenance margin rate and watch the liquidation price — and the "distance to liquidation" — move:

Cross margin behaves differently

Everything above is for isolated margin, where the liquidation price is fixed. Under cross margin, the liquidation price floats because it depends on your whole account balance and other open positions — see Isolated vs. Cross Margin.

Why this matters for an exchange

The liquidation engine is one of the most safety-critical systems a venue runs: it must calculate these thresholds accurately, monitor mark prices in real time, and close positions cleanly so the platform never takes on bad debt. It's a core reason operators lean on proven infrastructure rather than building risk systems from scratch. (More on the business side in How Crypto Exchanges Make Money.)

Formulas and maintenance-margin tiers vary by exchange and contract type; figures reflect the cited documentation.