How Liquidation Price Is Calculated: A Step-by-Step Walkthrough

Liquidation price is the price at which a leveraged position gets closed automatically because the remaining margin can no longer cover further losses. Knowing roughly how it is worked out makes it far less surprising when it happens.

The Core Idea

When you open a leveraged position, you post margin, a fraction of the position's full value, and the position is a multiple of that margin. As the price moves against the position, losses eat into the margin. Once the margin can no longer absorb further losses, the position is closed to prevent it from going negative. The price at which that happens is the liquidation price.

A Simple Example

Say you open a long position worth $1,000 using $100 of margin, which is 10x leverage. If the price of the underlying asset falls, your position loses value, and that loss comes directly out of your $100 margin. Once losses approach the full $100, the position nears liquidation. Roughly speaking, a 10x leveraged long gets liquidated by a price move of somewhere around 10% against it, before fees and any maintenance margin buffer are accounted for.

Why Leverage Changes the Math So Much

Higher leverage means a smaller price move is needed to reach liquidation, because the margin covering the position is a smaller fraction of its total value. A 2x position can typically absorb a much larger adverse move than a 20x position before the same liquidation outcome occurs.

What Else Affects the Exact Number

Exchanges typically apply a maintenance margin requirement, meaning liquidation happens slightly before margin reaches zero, not exactly at zero, to leave room to close the position in fast-moving markets. Fees on the way out also factor into the exact calculation. This is why liquidation price is usually shown as a specific number on the platform rather than something you need to calculate by hand.

Where to See This in Practice

Bitval's futures markets display the liquidation price for an open position directly on the trading interface, calculated automatically before and after entry, so it is visible rather than something to work out manually.

Why This Is Worth Understanding Anyway

Knowing the mechanics behind the displayed number helps explain why small changes in leverage or position size shift liquidation price by a lot, and why adding margin to a position moves that price further away. A stop-loss set with the liquidation price in mind is a more deliberate risk decision than one set arbitrarily.

You can create a Bitval account to see liquidation price calculated live on Bitval's futures markets.

This article is for informational purposes only and does not constitute financial advice. Leverage and margin trading carry substantial risk, including losing more than your initial margin.