Perpetual Futures Basics Series · Part 3 · 2026
How to Calculate Liquidation Price: Isolated Margin Formulas, Worked Examples, and How to Choose Between Cross and Isolated
This part covers mechanics and math only: how liquidation gets triggered, how to estimate the liquidation price, and where cross and isolated margin differ mathematically. How to use stop-losses and position sizing so you never reach that point is a separate topic, covered in Difference Between Stop Loss and Liquidation. For the basics (notional value, margin, mark price), see part one of the series, Perpetual Futures for Beginners.
Almost everyone who has traded futures has had this moment: staring at the "estimated liquidation price" on the position page with no idea where it comes from, or why it moved when you added a bit of margin. Behind it there's really just one equation. Once you understand it, you can answer the two most important questions before you ever open a position: how far does price have to move against me before I'm closed out, and how much will I lose when it happens?
1. How Liquidation Gets Triggered
When you open a futures position, the exchange works with two numbers:
- • Initial margin: the money locked at entry = position value ÷ leverage;
- • Maintenance margin: the minimum this position must keep = position value × maintenance margin rate (for example 0.5%).
When price moves against you, unrealized loss eats into margin bit by bit. The rule is one line:
Margin − unrealized loss ≤ maintenance margin → liquidation triggers
Unrealized loss is calculated on mark price (the common practice on major exchanges; check each exchange's rules)
Maintenance margin is the "handling reserve" the exchange sets aside: a liquidation order takes time to fill in the market and price may keep moving, so this small slice covers slippage and liquidation fees during the close-out. That's why whatever is left at liquidation generally isn't returned to you. The liquidation price is the price at which the equation above holds exactly.
2. The Isolated-Margin Formula and Its Derivation
Scope: USDT-margined (linear) perpetuals, isolated margin mode, ignoring fees and funding. Let entry price be P, leverage L and maintenance margin rate m.
Long
Liquidation price ≈ P × (1 − 1/L + m)
Short
Liquidation price ≈ P × (1 + 1/L − m)
Derivation (long, three lines)
Quantity Q, position value Q×P, margin = Q×P/L. When price falls to X the loss = Q×(P − X), and maintenance margin on the entry value = m×Q×P.
Liquidation condition: Q×P/L − Q×(P − X) = m×Q×P
Divide both sides by Q and rearrange: X = P − P/L + m×P = P × (1 − 1/L + m). For a short, swap the loss for Q×(X − P) and you get P × (1 + 1/L − m) the same way.
In plain English: the drop a long can absorb ≈ 1/leverage − maintenance margin rate. At 10x, margin is 10% of the position; subtract the 0.5% maintenance margin and you can absorb about a 9.5% adverse move. It also explains why the maximum leverage on each tier is always below 1/m: if 1/L is less than or equal to m, the liquidation condition is already met the instant you open.
3. Worked Examples: Leverage and Liquidation Distance
Entry price 100,000 USDT, maintenance margin rate 0.5% (an example value; the actual rate depends on the pair and position tier):
| Leverage | 1/L − m | Long liq. price | Short liq. price | Adverse move absorbed |
|---|---|---|---|---|
| 5x | 20% − 0.5% | 80,500 | 119,500 | 19.5% |
| 10x | 10% − 0.5% | 90,500 | 109,500 | 9.5% |
| 20x | 5% − 0.5% | 95,500 | 104,500 | 4.5% |
| 50x | 2% − 0.5% | 98,500 | 101,500 | 1.5% |
| 100x | 1% − 0.5% | 99,500 | 100,500 | 0.5% |
Look at the 100x row: a 0.5% move is something BTC can cover inside a single 1-minute candle. In isolated margin, high leverage means "almost no room for error", not "earning more".
Checking it with actual amounts (10x long)
Margin 1,000 USDT × 10 = position value 10,000 USDT = 0.1 BTC. Maintenance margin = 10,000 × 0.5% = 50 USDT.
Price falls to 90,500: loss = 0.1 × (100,000 − 90,500) = 950 USDT, remaining margin = 1,000 − 950 = 50 USDT = maintenance margin, which triggers liquidation exactly. ✓
A short works the same way: price rises to 109,500, loss = 0.1 × 9,500 = 950 USDT, 50 USDT left, liquidation triggers.
Enter your entry price and leverage and see the liquidation price directly
The liquidation price calculator uses the formula from this section and lets you enter the maintenance margin rate. After you calculate, compare with the number on your exchange's position page; how big the gap is and why is explained item by item in the next section.
4. Why the Exchange Shows Something Different
The simplified formula is for understanding the mechanism and estimating distance; the number your exchange displays will differ, and the cause is usually one of these five:
1. Maintenance margin rates are tiered
Exchanges tier by position value (often called "risk limits" or "tiers"): the bigger the position, the higher the maintenance margin rate and the lower the maximum leverage available. For the same 10x long, if your position falls in a tier with a 1% maintenance margin rate, the liquidation price is 100,000 × (1 − 0.1 + 0.01) = 91,000, which is 500 USDT closer than at 0.5%. Look up the exact tier values in your exchange's contract specifications; the 0.5% and 1% here are just examples.
2. Fees may be factored in
Some exchanges deduct the opening fee from isolated margin, or reserve a closing fee in the liquidation calculation, and the details vary. Take the 10x long above: if a 5 USDT opening fee (10,000 × 0.05%, an example rate) comes out of margin, margin becomes 995: 995 − 0.1 × (100,000 − X) = 50 → X = 90,550, so the liquidation price moves up by 50 USDT.
3. Funding slowly moves the liquidation price
If funding is settled out of isolated margin, the longer you hold the thinner the margin gets. Continuing example 2 from the funding rate guide: the same 10x long, held 7 days at a +0.1% per 8 hours rate, pays 210 USDT, leaving margin of 790: 790 − 0.1 × (100,000 − X) = 50 → X = 92,600. Price hasn't moved at all, yet the liquidation price has moved from 90,500 to 92,600.
4. Maintenance margin on mark price or entry price
The derivation above assumes maintenance margin is calculated on the entry value. If it's calculated on position value at the current mark price, the long liquidation price becomes P × (1 − 1/L) ÷ (1 − m) and the short becomes P × (1 + 1/L) ÷ (1 + m). In the 10x example these come to about 90,452 and 109,453, roughly 50 USDT off the simplified formula. The direction is the same, and you can ignore it when estimating.
5. Cross margin can't use a single-position formula
In cross margin the buffer is the whole account's equity, and the liquidation price depends on your balance and the PnL of all cross positions, so a single-position formula doesn't apply. The next section covers it.
Bottom line: go by the liquidation price the exchange shows, and use the formula to understand why it's where it is and what can move it.
5. Cross vs Isolated: Two Endings for the Same Position
Isolated: each position gets its own slice of margin, and that slice is the position's only buffer. Cross: the available balance in your account is a buffer shared by all cross positions. The comparison is clearest with the same position:
Account of 10,000 USDT. Open a 0.5 BTC long at 100,000: position value 50,000 USDT, maintenance margin rate 0.5% → maintenance margin 250 USDT. Ignore fees and funding.
Isolated, 10x
Allocate margin of 50,000 ÷ 10 = 5,000 USDT.
Liquidation price = 100,000 × (1 − 0.1 + 0.005) = 90,500 (a 9.5% drop).
At trigger the loss is 0.5 × 9,500 = 4,750, and the remaining 250 is generally consumed in the liquidation process, so that 5,000 USDT is essentially all lost;
the other 5,000 in the account is untouched.
Cross
The buffer is the full 10,000 USDT in the account.
Liquidation condition: 10,000 − 0.5 × (100,000 − X) = 250 → X = 80,500 (a 19.5% drop).
The liquidation price is more than twice as far away, but at trigger the loss is 0.5 × 19,500 = 9,750, and the account is nearly wiped out.
That's the essential trade-off: isolated trades "a closer liquidation price" for "losses capped at that one slice"; cross trades "the whole account as backstop" for "a further liquidation price". Neither is inherently safer; it depends on which ending you fear more.
A second trait of cross: positions affect each other
Continuing the cross account above, suppose there's also an ETH position with a position value of 10,000 USDT (maintenance margin 50) sitting on an unrealized loss of 3,000 USDT. The BTC position's liquidation price (assuming ETH price doesn't move) becomes: 10,000 − 3,000 − 0.5 × (100,000 − X) = 250 + 50 → X = 86,600. BTC price hasn't moved, but its liquidation price has shifted up by 6,100 USDT because of the other position's loss. Conversely, when the other position is profitable, it pushes this one's liquidation price further away. Liquidation in cross margin is an account-level event, not a single-position event.
A note on terminology: "cross margin mode" is not the same as "account-wide stop"
In this article, "cross" refers specifically to the exchange's margin mode. When we talk about the account-wide backstop or full-portfolio protection in the Extreme Series risk guide, we mean CoinTech2u's equity protection: an account-level stop-loss feature that closes the whole trading portfolio's positions together at the equity line you set. It's product-level risk control and a separate thing from the exchange's margin mode. The two can coexist: margin mode decides where the exchange liquidates you, and equity protection decides where the strategy exits first.
6. How to Choose: The Trade-Off Table
| Isolated | Cross | |
|---|---|---|
| Maximum loss at liquidation | That position's margin (plus anything you've added to it) | Potentially most of your account equity |
| Liquidation distance | Set directly by leverage (≈ 1/L − m), usually close | Set by account equity, usually further away |
| Between positions | Isolated from each other; one blowing up doesn't drag the others | Shared buffer: winners can prop up losers, and they can also go down together |
| Management effort | You watch each liquidation price and may need to add margin by hand | No per-position top-ups, but you watch the account-wide margin ratio |
| Effect of funding and fees | Can directly thin that position's margin, moving the liquidation price closer over time | Comes out of account equity, thinning every position's buffer together |
| Better suited to | Single high-leverage speculative trades, or when you want the maximum loss per trade fixed | Multi-position portfolios and hedged structures, where you're willing to manage risk at the account level |
Two practical rules hold whichever you choose:
- • If you choose cross, manage the account as if it were one position. Cross doesn't mean "can't be liquidated"; it means "the whole account shares the liquidation". Don't keep money in the account that you aren't prepared to put at risk. You can use exchange sub-accounts to keep funds for different purposes apart.
- • If you choose isolated, don't keep adding margin as you approach liquidation. The point of isolated is to cap the loss. Feeding money in all the way down removes that cap with your own hands and turns isolated into cross without any of the sharing benefits.
7. Does Leverage Actually Affect Liquidation?
Readers of the leverage and position size guide may ask: that article says "once position value is fixed, changing leverage only changes margin used", while this one says leverage sets the liquidation distance. Which is right? Both are, and the difference is in what the liquidation buffer is:
Isolated: buffer = this position's margin
Same position value, higher leverage → less margin locked → a smaller buffer for this position → the liquidation price gets closer. The table in section 3 is exactly this relationship.
Cross: buffer = account equity
Same position value, higher leverage → less margin locked and more available balance, but both are still in the same account and both count as buffer → the liquidation price barely changes with the leverage setting. That's why the cross example in section 5 never used leverage at all.
One thing is the same in both modes: what really pulls the liquidation price closer is a larger position value or less account equity. That's exactly why the leverage and position size guide stresses that "the risk knob is position size, not the leverage number".
CoinTech2u's strategies use cross margin. So for bot users the "cross" column above applies: the liquidation buffer is the equity of the whole futures account, and the leverage setting in the strategy mainly determines margin usage rather than setting the liquidation price on its own. The leverage guide's conclusion holds fully here. The flip side is that cross also means every position in the same account shares that buffer: keep your futures wallet adequately funded, and don't open extra positions by hand in the same account.
On top of exchange liquidation, CoinTech2u has another layer of protection: account-level Smart Protection (Equity Guard) closes positions proactively at the equity line you set, designed to exit before the exchange's liquidation threshold. In the published live statistics, the system stop-loss triggered on only 0.054% of closed orders, and none of those were exchange liquidations. But we've also spelled out the limits in the risk guide: slippage in extreme markets, and cases where the exchange liquidates before the protection acts, can both happen. It's a loss-limiting tool, not a promise to preserve capital. So whether or not you use a bot, knowing where your liquidation price is is required learning.
8. FAQ
Q: A wick went straight through my liquidation price. Why wasn't I liquidated?
Because wicks usually happen on last price, while major exchanges use mark price to decide liquidations, and mark price draws on several spot exchanges and often doesn't follow the wick down. The reverse also holds: if mark price gets there, you're liquidated even when last price looks like it hasn't. The difference between the two prices is in section 5 of part one.
Q: Can adding margin push the liquidation price further away?
In isolated margin, yes: top up the 10x long from 1,000 to 1,500 USDT of margin and the liquidation condition becomes 1,500 − 0.1 × (100,000 − X) = 50, so X = 85,500. But first ask yourself: is the money you're adding money you were already prepared to let this position lose? If not, topping up is dismantling the isolated cap (see section 6).
Q: Can I switch between cross and isolated while holding a position?
Most exchanges don't allow switching margin mode while you have a position or open orders on that pair; you need to close the position and cancel the orders first. Rules vary by exchange, so go by the prompts on your exchange. If you're running an automated strategy, don't change the mode settings on the exchange side while it's running; just configure things as the connection tutorial says (for OKX, for example, How to Switch to Futures Mode and Hedge Mode in OKX).
Q: What's the difference between liquidation and a stop-loss?
A stop-loss is an exit point you (or your strategy) chose on purpose, and the account still has funds left afterward. Liquidation is the exchange forcing the close when margin runs short, and the result is usually that the margin is essentially gone. For how to use stop-losses, position sizing and drawdown management so you never reach liquidation, see Difference Between Stop Loss and Liquidation.
Further Reading
- • Series part 1: Perpetual Futures for Beginners: How They Differ from Spot, How Margin and Leverage Work, and What Mark Price Is
- • Series part 2: The Complete Guide to Funding Rates: Who Pays Whom, How Often It Settles, and How to Work Out Your Holding Cost
- • Difference Between Stop Loss and Liquidation: In-depth Analysis of Drawdown and Risk Management Strategies
- • What Leverage Actually Is, and Why Changing It on CoinTech2u Doesn't Change Your Risk
- • Smart Protection Guide: Choosing the Right Equity Guard & Profit Guard Settings for You
- • Glossary: liquidation
This article is for explanatory purposes only and is not investment advice. The formulas are simplified versions that ignore fees and funding, and values such as the maintenance margin rate are examples; the actual liquidation price is whatever your exchange displays.