What is Liquidation?
Learn what liquidation is in crypto trading and how to avoid it.
Liquidation price is where your leveraged position gets force-closed by the exchange. With 10x leverage, just a 10% adverse move wipes you out completely. Calculate your exact liquidation price before entering any leveraged trade.
Warning:
With 50x leverage, a 2% price move against you can liquidate your position!
How to calculate liquidation price?
Long position (buy):
Liquidation Price = Entry Price × (1 - 1/Leverage)Short position (sell):
Liquidation Price = Entry Price × (1 + 1/Leverage)Example:
You buy BTC with 10x leverage at $50,000. A 10% price increase gives you 100% profit. But a 10% drop causes liquidation!
How to avoid liquidation?
- Use low leverage (max 10x)
- Leave a lot of margin as buffer
- Use stop-loss
- Monitor distance to liquidation
What Are Common Liquidation Scenarios?
Understanding how liquidation happens in practice helps you avoid it. Here are real-world scenarios:
- 10x Long on BTC at $50,000: A 10% drop to $45,000 liquidates your entire position. With 20x, only a 5% drop ($47,500) is needed
- 50x leverage on ETH: Flash crashes of 2-3% happen regularly - with 50x, even a 2% dip wipes you out completely
- Short squeeze scenario: If you're short with high leverage and price spikes upward, you can be liquidated before the price reverses back in your favor
How Do You Manage Risk with Leverage?
Professional traders use strict rules to survive leverage trading:
- Never risk more than 1-2% of your account on a single position
- Keep your liquidation price far from current price (use lower leverage)
- Set stop-loss orders 2-3% above your liquidation price
- Avoid holding leveraged positions through major events (FOMC, CPI releases)
- Use isolated margin mode to limit losses to one position
How to Calculate Liquidation Step by Step?
Let's calculate together: You want to go long on ETH at $3,000 with 5x leverage and $1,000 margin. Your position size is $5,000 (5 × $1,000). Liquidation price = $3,000 × (1 - 1/5) = $3,000 × 0.8 = $2,400. That means ETH needs to drop only 20% to liquidate you. At 10x leverage, liquidation would be at $2,700 - just 10% away.
| Leverage | Adverse Move to Liquidation | Example: $10K Position |
|---|---|---|
| 2x | ~50% | Liquidated if price drops 50% |
| 5x | ~20% | Liquidated if price drops 20% |
| 10x | ~10% | Liquidated if price drops 10% |
| 20x | ~5% | Liquidated if price drops 5% |
| 50x | ~2% | Liquidated if price drops 2% |
| 100x | ~1% | Liquidated if price drops 1% |
* Approximate liquidation distances for isolated margin. Actual levels vary by exchange fees and funding rates.
Liquidation Price
Calculate exact cryptocurrency liquidation prices for leveraged long and short positions. Manage your leverage risk.
Try Calculator →Data Sources
Price data provided by CoinGecko — one of the world's largest cryptocurrency data aggregators. All calculations are performed locally in your browser.
FAQ
1. What is liquidation in crypto trading?
Liquidation is when your position is automatically closed because your margin can no longer cover losses. For longs, liquidation happens when price drops below the liquidation price. For shorts, when price rises above it.
2. What leverage is safe?
Lower leverage is safer. 10x or less is recommended for most traders. 50x+ leverage can be liquidated with just 2% price movement. Always consider your risk tolerance.
3. What is initial margin?
Initial margin is the minimum collateral required to open a position. It equals position size divided by leverage. If leverage is 10x, you need 10% of position value as margin.
4. What is maintenance margin?
Maintenance margin is the minimum margin needed to keep the position open. Typically 0.5-1% of position value. If your margin drops below this, liquidation occurs.
5. Long vs Short - which is riskier?
Both carry risk. Long positions liquidate when price falls; short positions when price rises. In bull markets, longs are safer. In bear markets, shorts may be safer. But both can move against you quickly.
