Crypto Traders: Understand Your Liquidation Price Before Entering a Leverage Trade
In crypto trading, a liquidation price is the level at which an exchange closes a leveraged position without asking because the collateral no longer covers the accumulated loss.
To calculate this price, you need three inputs: entry price, leverage, and maintenance margin rate. For a long position, the formula is: entry price × (1 − 1 ÷ leverage + maintenance margin rate).
A worked example shows that with an entry at $77,000, ten times leverage, and a maintenance margin rate of 0.5 percent, the liquidation price works out at roughly $69,685, or 9.5 percent below the entry.
The calculation becomes interesting in comparison, showing how the liquidation price changes with different levels of leverage. For instance, with an identical entry price and maintenance margin rate, a position with 25 times leverage has a liquidation price at around $73,535, while a position with 100 times leverage has a liquidation price at around $76,615.