Leverage, margin and liquidation in crypto futures
Leverage lets a small amount of margin hold a large position. It does not change how much a trade loses at your stop, but it decides how close the exchange's forced exit is. Understand these few numbers and liquidation stops being a surprise.
What leverage really does
Leverage is the ratio between the position and the margin you put up. With 1,000 USDT of margin at 10× you hold a 10,000 USDT position; at 50× a 50,000 USDT position. Every 1 % move in the price is 1 % of the position, so at 10× it is 10 % of your margin, and at 50× it is 50 %.
The important point: if you size the trade from your stop loss (see the risk management guide), leverage only changes how much margin is locked. The loss at the stop stays the same. Trouble starts when traders use leverage to make the position bigger instead.
Initial margin, maintenance margin and the mark price
Initial margin is what you pay to open: position value ÷ leverage. Maintenance margin is the minimum the position must keep; it is a small percentage of the position value (the maintenance margin rate, often around 0.4 % to 1 % for Bitcoin at normal sizes, higher for big positions and small coins). When your margin plus the open profit or loss falls to the maintenance margin, the position is liquidated.
Exchanges check this against the mark price, a fair price built from several spot markets, not the last trade. That protects you from one odd print, but it also means your liquidation can happen at a level the last-traded chart barely touched.
Isolated or cross margin
Isolated: only the margin you gave this position can be lost. The liquidation price is closer, but a bad trade cannot drain the rest of the account.
Cross: the whole free balance backs every open position. The liquidation price moves further away, which feels safer, but if it is reached you lose much more than one trade's margin. Many careful traders use isolated margin with a stop loss, so the worst case is always known.
How the liquidation price is calculated
For a USDT-margined perpetual with collateral C (your margin, plus the free balance in cross mode), q coins, entry E and maintenance rate m, the position is liquidated when C + profit = m × position value:
Long: P = (E × q − C) ÷ (q × (1 − m))
Short: P = (E × q + C) ÷ (q × (1 + m))
A quick rule for a long: the price can fall about 1 ÷ leverage − m before liquidation. At 10× that is about 9.5 %, at 20× about 4.5 %, at 50× under 2 %, and at 100× less than 0.5 %. Bitcoin moves 2 % in an hour on an ordinary day. Try your own numbers in the liquidation calculator.
How to keep liquidation far away
- Always trade with a stop loss that sits well before the liquidation price.
- Size from the stop with the crypto position size calculator, then pick the leverage that only locks the margin you need.
- Do not add margin to a losing position to "save" it; that is averaging down with leverage.
- Remember that funding and fees reduce your margin over time on a position held for days.
- Be careful around big news and weekends, when moves can be fast and the order book thin.
Worked example
Long 0.1 BTC at 100,000 with 10× leverage: position 10,000 USDT, initial margin 1,000 USDT, maintenance rate 0.5 %. Liquidation: (10,000 − 1,000) ÷ (0.1 × 0.995) = 90,452, 9.5 % below the entry. A stop loss at 97,000 costs 300 USDT and closes the trade long before that. In cross mode with 1,000 USDT more free balance the liquidation moves to 80,402, but reaching it would cost about 1,960 USDT.
Tools for this guide
Questions
What leverage should a beginner use?
Size every trade from the stop loss first. Then low leverage such as 2× to 5× is usually enough; it keeps the liquidation far from the stop. High leverage does not make a good trade better.
Why was I liquidated when the chart did not reach my price?
Exchanges liquidate on the mark price, and the fee for closing is also taken from the margin. A long wick on the mark price or tiered maintenance rates on a big position can trigger it earlier than the last-price chart shows.
Is cross margin better than isolated?
Cross pushes the liquidation further away but can cost the whole balance; isolated limits the loss to one trade's margin. With a proper stop loss, isolated keeps the worst case clear.
Can I lose more than my margin?
On most crypto exchanges an isolated position cannot lose more than its margin; extreme gaps are covered by the exchange's insurance fund or auto-deleveraging. Read your exchange's rules; CFD brokers have their own negative-balance policies.
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