Liquidation is not a stop loss. It's the exchange closing your position at market because your margin no longer covers the risk — with punitive fees, at the worst prices, often in the exact wick that would have recovered. Avoiding it is mostly arithmetic done *before* entry. Here's the arithmetic.
Where the liquidation price comes from
A position is liquidated when equity falls below maintenance margin — a percentage of notional (typically 0.4–1.25%, tiered up with size) the exchange requires as a buffer. For an isolated long, the distance from entry to liquidation is approximately:
distance ≈ 1/leverage − maintenance margin rate
Which produces the table every leveraged trader should have memorized:
- 5x → ≈ 19.5% adverse move to liquidation
- 10x → ≈ 9.5%
- 20x → ≈ 4.5%
- 50x → ≈ 1.5%
- 100x → ≈ 0.5% — inside the bid-ask noise of a calm hour
Crypto majors routinely move 3–5% in a day; alts double that. At 20x+, ordinary volatility — not being wrong — is what liquidates you. Estimate your exact number, including cross-margin buffers, with the liquidation calculator; the mark price (index-anchored), not the last trade, is what the engine watches.
Cross vs isolated: choose per trade
Isolated caps the damage at the position's own margin — the right default for directional bets, especially volatile alts. Cross lets your whole wallet defend the position, pushing liquidation much further away at the cost of a worse worst case: one runaway position can take the entire balance, including the margin backing your other trades. Cross earns its keep for hedged structures (like funding arbitrage legs) where the combined book is the real position. Know which mode you're in before entry — venue defaults differ across exchanges.
The habits that keep you out of the engine
- Stop well before liquidation. Your stop is the planned exit; liquidation is the failsafe behind it. If they're close together, the stop isn't real — a wick through it fills you at the liquidation price anyway.
- Size from the stop, not the leverage dial. Decide dollar risk and stop distance first; notional follows (position size calculator). Leverage then only determines posted margin.
- Budget for funding. Carry costs eat margin on held positions, dragging the liquidation price toward you over time — the slow liquidation nobody notices until it's close.
- Don't defend a dead thesis. Adding margin to push liquidation away is rational only if the reason you entered still stands. Usually it's paying to stay wrong longer.
- Respect volatility regimes. The 20x that survived a quiet range dies in a news week. Reduce leverage when realized volatility expands.
The one-line summary
If you can't state your liquidation price, your stop, and the distance between them before entering, you haven't finished planning the trade. Thirty seconds in the calculator is cheaper than the lesson.