Leverage and Liquidation Price Explained With Examples
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Leverage lets you open a position larger than the money you put up, and the liquidation price is the market price at which the exchange closes that position because your margin is used up. The higher the leverage, the closer that price sits to your entry. This page gives the simple formula, a table of example liquidation prices, and the few settings that move the number. All prices are made-up examples to show the method, not market data and not a suggestion to trade.
What Is Leverage, in Plain Terms?
Margin is the money you set aside for a futures position. Leverage is the ratio between the position size and that margin. With 10x leverage, $100 of margin controls a $1,000 position. Gains and losses are counted on the whole $1,000, which is why a small price move changes your balance a lot more than on spot. Spot trading has no margin and no liquidation; the contrast is covered in spot vs futures for beginners.
What Is a Liquidation Price?
Your margin is a cushion. As the price moves against you, the cushion shrinks. When it gets down to the exchange's minimum level (the maintenance margin), the exchange closes the position automatically so the loss cannot grow past what the margin covers. The price where this happens is the liquidation price. It is not a fee and not a penalty you choose; it is the point where the position can no longer be carried.
How Do You Estimate the Liquidation Price?
A simplified estimate for an isolated-margin position, ignoring fees and the maintenance margin:
- Long: liquidation price ≈ entry price × (1 − 1 ÷ leverage)
- Short: liquidation price ≈ entry price × (1 + 1 ÷ leverage)
Example with an entry price of $100:
| Leverage | Margin for a $1,000 position | Long: estimated liquidation | Short: estimated liquidation | Move that uses up the margin |
|---|---|---|---|---|
| 2x | $500 | $50 | $150 | 50% |
| 5x | $200 | $80 | $120 | 20% |
| 10x | $100 | $90 | $110 | 10% |
| 20x | $50 | $95 | $105 | 5% |
Example values computed from the formula above with an entry of $100; not exchange data. The real liquidation price is somewhat closer to your entry, because the maintenance margin and fees are taken from the cushion too.
The pattern to remember: leverage divides the distance between entry and liquidation. At 10x the distance is a tenth of the price; at 20x, a twentieth.
What Moves the Liquidation Price?
- Leverage setting. More leverage with the same position size means less margin and a closer liquidation price, as the table shows.
- Extra margin. Adding margin to an isolated position pushes the liquidation price further away. Using the same position size with more margin is the same as using lower leverage.
- Isolated vs cross margin. Isolated margin limits the cushion to the amount assigned to that position. Cross margin lets the position draw on the whole futures balance, which moves liquidation further away but puts the rest of that balance behind the trade.
- Maintenance margin and fees. Each exchange sets its own maintenance margin, and it can depend on position size. The order form on your exchange shows the liquidation price it calculates; trust that number over any estimate here.
How Do Stops and Position Size Fit In?
Liquidation is the exchange's exit, and a stop is yours. A stop placed before the liquidation price lets you leave on your own terms with some margin still intact. Size the position from your stop using the 1% risk rule, and read stop-loss basics for how stop orders behave in fast markets.
What Does Futures Trading Cost on Each Exchange?
Fees are charged on the position's notional value, so higher leverage does not reduce them; a $1,000 position pays the fee on $1,000 whether the margin is $100 or $500. Funding payments come on top while a position is open. Compare the rates on futures fees. Through coinport's sign-up links, trading fees on the exchange are 20% lower; that applies to trading fees only, not to withdrawal or network fees.
Educational explanation, not investment advice. Leveraged positions can be closed by the exchange when margin runs out.
Frequently Asked Questions
What is a liquidation price?
It is the market price at which an exchange closes a leveraged position automatically because the margin behind it has fallen to the minimum level. For a long position it is below the entry price, for a short position it is above.
How do I estimate my liquidation price?
For an isolated position, a rough estimate is entry price multiplied by (1 minus 1 divided by leverage) for a long, and by (1 plus 1 divided by leverage) for a short. The exchange adds maintenance margin and fees, so its own figure on the order form is the one to use.
Does higher leverage change the trading fee?
No. Futures fees are charged on the position size, not on the margin, so the same position pays the same fee at 5x or 20x.