Risk mechanics · Non-custodial

What Is a Liquidation Price, and How Do You Stay Away From It

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What liquidation is (and who triggers it)

Liquidation is the forced closure of a perpetual futures position by the trading venue, not by the trader. It occurs when the unrealized loss on the position grows large enough to exceed the margin (collateral) the trader allocated to the trade.

Venues use liquidation as a risk control mechanism to prevent traders from losing more money than they have deposited, which would create unpayable debt for the venue and other market participants. When a position is liquidated, the venue automatically sells (for long positions) or buys (for short positions) the full position size at market to lock in the loss, which is covered by the trader’s allocated margin. Many venues also charge an additional liquidation fee on top of the loss.

This is distinct from a margin call, which is a warning notification from the venue that a position is approaching liquidation. A margin call instructs the trader to either add more margin to the position or reduce its size to avoid forced closure. In crypto markets, which trade 24/7 and can experience extreme price volatility in minutes, liquidation can trigger before a trader has time to act on a margin call. You should never rely on margin calls as a primary safety net.

What determines your liquidation price: 3 core inputs

For isolated margin perp positions (the standard for most retail traders, where only the collateral assigned to a single trade is at risk), your liquidation price is calculated from three variables. Changing any one of these inputs will move the liquidation price closer to or further from your entry.

The core formula, described in plain terms: liquidation occurs when the market price moves far enough against your position that the unrealized loss equals your allocated margin (minus applicable fees). For long positions, this price is always below your entry; for short positions, it is always above your entry.

The three inputs that shape this calculation are:

1. Entry price: The price at which your position opens. All else equal, a higher entry price for a long position means a higher liquidation price, and a lower entry price means a lower liquidation price. The inverse is true for shorts.
2. Leverage: The multiplier that lets you control a larger position size with a smaller amount of margin. Higher leverage reduces the distance between your entry price and your liquidation price, meaning a smaller adverse price move can trigger forced closure. Lower leverage widens that gap.
3. Allocated margin: The amount of collateral you commit specifically to the position. Adding more margin pushes the liquidation price further away from your entry, as you have more collateral to absorb losses before liquidation triggers. Reducing margin pulls the liquidation price closer to entry.

The table below summarizes how each input change affects liquidation price for long and short positions:

For cross margin positions, where your entire account balance is used as collateral for all open trades, liquidation depends on the combined profit and loss of every open position and your total account equity. This is more complex to track, and most new traders are better served by starting with isolated margin to limit risk to individual trades.

Why a stop-loss between entry and liquidation is not optional

Many new traders treat stop-loss orders as a discretionary tool for disciplined trading, rather than a critical guardrail against liquidation. This is a costly mistake.

A stop-loss is only useful for avoiding liquidation if it is placed between your entry price and your liquidation price. For a long position, this means your stop trigger is higher than your liquidation price; for a short position, it means your stop trigger is lower than your liquidation price. If your stop is set on the far side of your liquidation price, it will never trigger—liquidation will close your position first.

There are three key reasons this setup is non-negotiable:

1. Liquidation costs more: Forced liquidations often incur additional venue-specific fees, and the position is closed at market price, which can suffer from severe slippage during volatile periods. A properly placed stop-loss lets you exit at a price you define (subject to normal slippage) and avoids liquidation-specific charges.
2. You retain control of your risk: Liquidation is automatic and final. A stop-loss lets you define your maximum acceptable loss before you enter the trade, aligned with your personal risk tolerance and trade thesis.
3. Markets move when you’re not watching: Crypto markets operate around the clock, every day of the week. Price can swing sharply while you are asleep, at work, or away from your screen. An automated stop-loss removes the need to monitor positions constantly.

A common counterargument is that stop-losses are useless because price wicks can trigger stops before reversing. While this can happen, a stopped-out trade with a controlled loss is far less costly than a full liquidation. The fix is to set your stop far enough from entry to account for normal market volatility, while still keeping it well inside your liquidation price to leave a buffer.

Note that no stop-loss is 100% reliable: during extreme market events like flash crashes, price can gap past a stop level entirely, or slippage can be so severe that the stop executes at a worse price than your trigger. This is why your liquidation price should always be a meaningful distance beyond your stop-loss, not just barely past it. On Trending, TP/SL orders rest on-chain and trigger without the app open, reducing the risk of missed stops due to app connectivity issues.

Check your liquidation price before you confirm the trade

The single most effective habit to avoid unexpected liquidation is to review your liquidation price before you submit an order, not after the position has already filled.

Many new traders open a position first, then navigate to their positions dashboard to check how close liquidation is. By that point, you are already exposed to market risk. If the liquidation price is closer than you are comfortable with, you will either have to adjust the live position (by adding margin or reducing size) or close it entirely, losing any entry fees you paid in the process.

The correct workflow is to work backwards from your risk plan:

1. Before opening the trade, decide how far price can move against you before your trade thesis is invalid (this is your stop-loss level).
2. On the order screen, adjust your position size, leverage, or allocated margin until the displayed liquidation price is well beyond your planned stop-loss level.
3. Confirm the trade only once you have verified the liquidation price fits your risk parameters.

Trending displays your estimated liquidation price directly on the order confirmation screen, before you submit the trade, so you never have to guess how much adverse movement your position can withstand. If you are new to perp trading and still learning how to adjust inputs to hit your desired liquidation level, you can open a position with $20 of margin to practice without risking significant capital.

Trending prioritizes straightforward pre-trade liquidation transparency and on-chain TP/SL execution, but it is not the right fit for every trading need. If you require advanced features like portfolio margin, cross-position liquidation modeling, or automated position sizing tools, a full-service professional trading platform will be a better match.

After opening a position, recheck your liquidation price any time you adjust the position: adding or removing margin, changing leverage, or adding to the position size will all shift the liquidation level, and it is easy to accidentally pull it closer to entry without noticing.

Try it on the chart →