Liquidation price calculator

How the liquidation price is derived

A leveraged position is closed by the venue when its equity falls to the maintenance margin, not when the equity reaches zero. Equity is the margin you posted plus the unrealised profit or loss; the maintenance margin is a percentage of position notional that the venue requires you to keep at all times. Setting those two equal and solving for price gives the liquidation price, and everything else on this page follows from that one equation.

The formula

quantity          Q = notional / entry
margin            M = notional / leverage + added margin
maintenance       MM = mmr × notional

liquidation when  equity ≤ maintenance margin

long              P = (entry − M/Q) / (1 − mmr)
short             P = (entry + M/Q) / (1 + mmr)
bankruptcy, long  P = entry − M/Q
distance          (P − entry) / entry

For a long, equity is M + (P − E)·Q and the requirement is mmr·P·Q, so the trigger is (E − M/Q) divided by (1 − mmr). For a short the profit term flips and it becomes (E + M/Q) divided by (1 + mmr). The term M/Q is the margin behind each unit, and it does all the work: the distance to liquidation is the cushion each unit carries, adjusted slightly for the maintenance rate.

That form makes a fact obvious that the usual textbook formula hides. Leverage does not appear in the equations except through M. Halving your leverage and doubling your posted margin produce exactly the same liquidation price, because they produce the same M. The effective-leverage output makes this explicit: after you add margin, that is the leverage your position actually carries, whatever number you selected when you opened it.

The bankruptcy price is where equity hits zero: the position has lost exactly the margin behind it. Liquidation triggers before that point, and the gap between the two is what the venue uses to close the position without the account going negative. When the market gaps through both, the shortfall falls to an insurance fund or to auto-deleveraging.

The maintenance margin rate is the input people most often get wrong, and it is the reason this calculator makes it a field. Venues set it per contract and raise it in tiers as position size grows, so the same leverage on a larger position liquidates earlier. The value pre-filled here is a placeholder chosen so the page computes something; it is not taken from any venue and should be replaced with the number from the tier your position actually falls into.

What the formula assumes

Liquidation is triggered by the mark price, not the last traded price. Mark price is derived from an index across several spot venues, precisely so that a thin book or a single-venue wick cannot liquidate positions that are not really underwater. It also means the candle printed on the venue chart is not what your liquidation is measured against, and a position can survive a wick that appears to pierce it.

Two structural details are outside this calculation. Liquidation fees are charged when the position is closed, which effectively brings the trigger slightly closer than the formula suggests. And large positions are often liquidated in stages: the venue reduces the position tier by tier rather than closing all of it, so a single number understates a process that happens in steps. Both push in the same direction, which is that the real liquidation is at least as close as the one computed here.

Finally, all of this assumes isolated margin, where the position has its own dedicated margin and can be liquidated on its own. Under cross margin the account balance backs every position, so the liquidation price of any one of them depends on the unrealised profit and loss of all the others and moves as they do. A cross-margin liquidation price is not a property of a position at all, and no single-position calculator — including this one — can compute it.

Questions

Why is my venue's liquidation price different from this one?

Almost always the maintenance margin rate. Venues set it per contract and raise it in tiers as position size grows, and the value pre-filled here is a placeholder rather than a venue figure. Liquidation fees, funding already paid and the mark-versus-last price difference account for the rest.

What is the difference between the liquidation and bankruptcy prices?

Liquidation is where equity falls to the maintenance margin, which is a positive amount. Bankruptcy is where equity reaches zero. The venue closes the position in the gap between them so that the account does not go negative; if the market moves through that gap too fast, an insurance fund or auto-deleveraging covers the shortfall.

Does adding margin help more than reducing leverage?

They are the same thing. Both change the total margin behind the position, which is the only way either of them enters the formula. The effective-leverage output shows where you end up after adding margin, regardless of the leverage you selected at entry.

Does this work for cross margin?

No. Under cross margin every position shares the account balance, so the liquidation price of one position depends on the unrealised profit and loss of all the others and changes as they move. The calculation here is for isolated margin, where a position stands on its own.

Background

What this calculation is actually measuring

The calculator does the arithmetic. The guide explains the mechanism underneath it: where the number comes from, what has to be true for it to hold, and the point at which it stops describing the market in front of you. If you are going to act on a figure this page produced, that is the page to read first.