What is liquidation price and how to avoid it
- Liquidation price is the point where your losses consume your entire margin, closing the position automatically.
- It depends on your leverage, entry price, and position direction (long or short).
- Higher leverage brings your liquidation price closer to your entry price.
- You can manage this risk with lower leverage, wider stop-losses, and adding margin when needed.
If you trade with leverage, your liquidation price is the single most important number to understand before you open a position — it's the point where the trade closes itself, on the exchange's terms, not yours.
What it means
Liquidation price is the price level at which your losses have consumed your entire margin, at which point the exchange automatically closes your position to prevent your account balance from going negative. Once it's hit, the position is gone — there's no waiting it out for a recovery, because the position no longer exists.
What determines it
Three main factors set your liquidation price:
- Leverage — higher leverage means a smaller margin cushion relative to position size, so liquidation sits closer to your entry price.
- Entry price — the price you opened the position at, which liquidation price is calculated relative to.
- Position direction — for a long position, liquidation sits below your entry price (price falling hurts you); for a short position, it sits above (price rising hurts you).
Most exchanges also factor in maintenance margin requirements — a minimum margin level below which liquidation triggers even slightly before your margin theoretically hits zero, which adds a small safety buffer for the exchange, not for you.
A simplified example
With 10x leverage on a long position entered at $100, a roughly 10% drop to around $90 would liquidate the position — since a 10% adverse move against a 10x leveraged position consumes approximately 100% of your margin, before accounting for fees and maintenance margin. At 20x leverage, that threshold roughly halves to about a 5% drop. The relationship is straightforward: the higher your leverage, the closer — and more easily reachable — your liquidation price becomes.
Rather than doing this math by hand, plug your own numbers into the liquidation price calculator to see your exact liquidation point before opening a position.
How to avoid getting liquidated
The single biggest lever (no pun intended) you control. Lower leverage means your liquidation price sits further from your entry, giving normal volatility more room before it becomes a problem.
Even at moderate leverage, putting a large share of your total capital into one position increases how much a liquidation actually costs you.
A stop-loss closes your position on your own terms at a smaller loss, instead of letting it run all the way to forced liquidation.
Adding funds to your margin pushes your liquidation price further away, though this should be a deliberate decision, not a reflexive attempt to avoid taking a loss.
Related reading
If you're still getting familiar with the basics of leveraged trading, start with our guides on leverage and spot vs futures trading before opening a leveraged position for the first time.