Crypto futures trading is like guessing where a coin’s price will go without owning it. You use a small amount of money to start, but if the price moves against you, your trade might close automatically—this is liquidation.
Calculating the liquidation price helps you know your risks and trade smarter. In this clear guide, we’ll explain the steps, give examples, and share tips to stay safe.
The liquidation price is the point at which an exchange stops your trade because your funds (called margin) can’t cover losses. It’s like a safety net to avoid bigger problems. In crypto, prices can change quickly, so knowing this price helps you plan and protect your money.
Exchanges often show the liquidation price, but doing it yourself helps you understand your trade better. It shows how choices like leverage affect risks, keeping you ready for surprises.
READ MORE: Crypto Futures Liquidation Explained
Before we start calculating, let’s learn some basics. Futures are agreements to buy or sell a coin later at a certain price. Margin is your own money in the trade, and leverage makes it act bigger. The mark price—a fair number from many exchanges—decides when liquidation happens, not the last trade price.
Initial margin is your starting money.
Maintenance margin is the least you need to keep the trade going. Leverage boosts your trade: 10x leverage turns $100 into $1,000 of trading power. But bigger leverage means you’re closer to liquidation, so be careful.
Mark price is a steady value, averaged from big exchanges like Binance or Coinbase. It stays fair even when prices jump, so it’s used for liquidation checks and calculations.
Let’s go through the math in a simple way, like solving a school problem. We’ll focus on long positions (expecting that the price goes up). Short positions are similar, but with a small change.
You need these numbers:
READ MORE: How Much Leverage Is Too Much in Crypto Futures?
For long trades:
Liquidation Price = Entry Price – (Initial Margin ÷ (Position Size × Maintenance Margin Rate))
Example: P = $50,000, M = $1,000, S = $10,000, R = 0.005.
Calculate: 1,000 ÷ (10,000 × 0.005) = 1,000 ÷ 50 = 20.
Liquidation Price = 50,000 – 20 = $49,980.
If the mark price reaches $49,980, your trade closes.
Here’s a Reddit thread explaining liquidation math
Trading fees (like 0.1%) and funding rates (small payments in futures) reduce your margin a bit. Add them to get a more exact liquidation price. Exchanges often include these in their tools.
For shorts (betting the price falls):
Liquidation Price = Entry Price + (Initial Margin ÷ (Position Size × Maintenance Margin Rate))
Same numbers: 50,000 + 20 = $50,020. If the price hits $50,020, your trade closes.
READ MORE: Detect Leverage Build-Up Using Futures Heatmap
Let’s look at two real-life examples to make it clear.
Anu starts a long Ethereum trade at $3,000 with $500 margin, 5x leverage (S = $2,500), R = 0.01.
If the mark price drops to $2,980, her trade ends.
Vikram shorts Bitcoin at $40,000 with $200 margin, 20x leverage (S = $4,000), R = 0.005.
A small price rise closes his trade.
This Twitter thread compares trading risks to a coin flip, making liquidation risks easier to understand.
READ MORE: Liquidation Maps in Crypto Futures Trading
Knowing your liquidation price is the first step. Here’s how to stay safe:
Calculating your crypto futures liquidation price is like reading a map. It shows where risks lie. With simple steps, real examples, and tools, you can manage trades wisely. This is where Mudrex comes in.
Mudrex gives you the clearest information regarding the specifics of crypto trading and best-in-class calculators, and clear guides that will help you trade crypto confidently.
Start with practice trades, stay alert, and grow your skills with Mudrex’s resources.
You need entry price, position size, initial margin, maintenance margin rate, and leverage. Your exchange has these details.
Mark price is fair, using data from many exchanges to avoid unfair closures.
READ MORE: Liquidation Maps in Crypto Futures Trading
Yes, fees and funding rates reduce margin, making liquidation closer. Include them for accuracy.
Check after market news or trade changes, as prices move fast.
Yes, exchanges and sites like Coinglass have easy calculators.
READ MORE: Crypto Futures Liquidation Explained
Krishnan is a Bangalore-based crypto writer dedicated to simplifying complex crypto concepts. He covers blockchain, DeFi, and NFTs, with a focus on real-world asset tokenization and digital trust. Previously he has written on Real Estate related assets for NoBroker. Krishnan holds a B.Tech degree from the College of Engineering Trivandrum.
