Liquidation Price Calculator
Estimated Liquidation Price
What is a Liquidation Price?
In leveraged trading, particularly in the cryptocurrency and forex markets, liquidation occurs when a trader's margin account can no longer support their open positions. The Liquidation Price is the specific price point at which your position is automatically closed by the exchange to prevent a loss that exceeds your deposited collateral.
How the Calculator Works
This calculator uses your entry price, leverage, and maintenance margin to determine the point of no return. Here is the logic behind the math:
- Long Positions: The liquidation price is below your entry price. If the market drops, your margin is depleted.
- Short Positions: The liquidation price is above your entry price. If the market rises, your margin is depleted.
- Maintenance Margin: This is the minimum amount of equity required to keep a position open. Most exchanges set this between 0.4% and 1%.
The Mathematical Formula
While various exchanges use slightly different algorithms (especially regarding funding rates and fees), the core formula used here is:
Short: Entry Price × (1 + (1 / Leverage) – Maintenance Margin Rate)
Example Calculation
Suppose you enter a Long position for Bitcoin at $60,000 using 10x leverage with a 0.5% maintenance margin:
- Initial Margin = 1 / 10 = 10% (0.10)
- Liquidation Price = 60,000 × (1 – 0.10 + 0.005)
- Liquidation Price = 60,000 × 0.905 = $54,300
This means if the price of Bitcoin drops to $54,300, your position will be liquidated to ensure the exchange does not lose money.
Risk Management Tips
To avoid liquidation, consider the following strategies:
- Use Lower Leverage: Higher leverage brings the liquidation price significantly closer to your entry price.
- Set Stop-Loss Orders: Always set a stop-loss above (for longs) or below (for shorts) your liquidation price.
- Monitor Maintenance Margin: Keep an eye on the specific requirements of your chosen exchange (e.g., Binance, Bybit, or Kraken), as they vary by asset volatility.