How it works
An exchange liquidates you when your losses eat the margin down to the maintenance margin, the small slice it keeps to close the position safely. With isolated margin only the margin on that position counts. With cross margin the rest of your free balance also absorbs losses, so liquidation sits further away.
The number that matters is the gap between your stop loss and your liquidation price. If liquidation comes first, the exchange exits for you at a worse price and charges a liquidation fee. Keep liquidation well beyond the stop.
Formulas
- Quantity = Margin × Leverage ÷ Entry
- Long liquidation = (Entry × Qty − Margin − Extra balance) ÷ (Qty × (1 − MMR))
- Short liquidation = (Entry × Qty + Margin + Extra balance) ÷ (Qty × (1 + MMR))
- Extra balance = 0 for isolated margin
Questions traders ask
What is a good distance between stop loss and liquidation?
As a rule of thumb, keep liquidation at least as far beyond your stop as the stop is from entry. Wicks and slippage happen fastest exactly when the market moves against you.
Why is my exchange showing a slightly different liquidation price?
Exchanges use tiered maintenance margin, include fees and funding in the margin balance, and calculate from the mark price. This tool is an estimate built on the standard formula.
Does higher leverage increase my risk?
Leverage does not change how much you lose at your stop, position size does. It does move the liquidation price closer to entry, which makes a forced exit more likely.