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Understanding and Calculating of Liquidation in Isolated Margin Mode

  • Updated

In crypto trading, liquidation occurs when the margin in your account falls below the required maintenance margin, and your position is automatically closed to prevent further losses. Calculating the liquidation price is crucial for effective risk management, helping traders anticipate potential risks and make informed decisions.

 

Liquidation Price Formulas

The liquidation price differs for long and short positions:

  • For Long Positions:
    Liquidation Price = Average Entry Price - [(Initial Margin - Maintenance Margin) / Order Quantity]

  • For Short Positions:
    Liquidation Price = Average Entry Price + [(Initial Margin - Maintenance Margin) / Order Quantity]

     

Key Terms Explained

  1. Average Entry Price: The average price at which the position was opened.

  2. Order Quantity: The size of your position in the underlying asset.

  3. Notional Position Value: The total value of the position.

    1. Notional Position Value = Entry Price × Order Quantity

  4. Initial Margin (IM): The amount of collateral required to open a position.

    1. Initial Margin = Notional Position Value ÷ Leverage

  5. Maintenance Margin (MM): The minimum amount of collateral required to keep the position open.

 

On Flipster, maintenance margin is determined by the Position Bracket system, where margin requirements depend on the size of your position and the tier it falls into.

Maintenance Margin (USDT) = Notional Position Value × MMR − Maintenance Amount

As your position size increases:

  • Maximum leverage decreases

  • Maintenance margin requirements increase

 

Tier Table Example

Tier Min position (USDT) Max position (USDT) Max Leverage Maintenance Margin Rate (MMR) Maintenance amount (USDT)
1 – 300,000 150x 0.33% 0
2 300,000 750,000 100x 0.5% 510
3 750,000 3,000,000 75x 0.65% 1,635
4 3,000,000 10,000,000 50x 1% 12,135
5 10,000,000 20,000,000 25x 2% 112,135
6 20,000,000 30,000,000 1x 50% 9,712,135

Note: Specification varies depending on the token. Check the Trading Rules Page for details.

Column Definitions

  • Position Size (USDT)
    Your total notional position value used to determine the Tier.

  • Max Leverage
    Highest leverage allowed in that Tier.

  • MMR (Maintenance Margin Rate) and Maintenance Amount
    Used to calculate the required maintenance margin.

For more information on tiers and calculations, please refer to the Position Bracket Explained article.

Note: The following examples use USDT for simplicity. The same formulas and logic apply to USD1-quoted perpetual swap contracts.

 

Example 1: Calculating Long Liquidation Price

Scenario:

  • Position: Long

  • Average Entry Price: 90,000 USDT

  • Order Quantity: 1 BTC

  • Leverage: 100×

  • Maintenance Margin Rate: 0.5%

  • Maintenance Amount: 0

Steps:

1. Calculate Notional Position Value
Notional Position Value = Entry Price × Order Quantity
= 90,000 × 1 = 90,000 USDT

2. Calculate Initial Margin (IM)
IM = Notional Position Value ÷ Leverage
= 90,000 ÷ 100 = 900 USDT

3. Calculate Maintenance Margin (MM)
MM = Notional Position Value × Maintenance Margin Rate − Maintenance Amount
= 90,000 × 0.5% − 0 = 450 USDT

4. Apply the Long Liquidation Price Formula
Liquidation Price = Entry Price − [(IM − MM) ÷ Order Quantity]
= 90,000 − [(900 − 450) ÷ 1] = 89,550 USDT

Result:
The liquidation price for this long position is 89,550 USDT.


 

Example 2: Calculating Short Liquidation Price

Scenario:

  • Position: Short

  • Average Entry Price: 1.65 USDT

  • Order Quantity: 200 APE

  • Leverage: 20×

  • Maintenance Margin Rate: 2%

  • Maintenance Amount: 0

Steps:

1. Calculate Notional Position Value
Notional Position Value = Entry Price × Order Quantity
= 1.65 × 200 = 330 USDT

2. Calculate Initial Margin (IM)
IM = Notional Position Value ÷ Leverage
= 330 ÷ 20 = 16.5 USDT

3. Calculate Maintenance Margin (MM)
MM = Notional Position Value × Maintenance Margin Rate − Maintenance Amount
= 330 × 2% − 0 = 6.6 USDT

4. Apply the Short Liquidation Price Formula
Liquidation Price = Entry Price + [(IM − MM) ÷ Order Quantity]
= 1.65 + [(16.5 − 6.6) ÷ 200] = 1.6995 USDT

Result:
The liquidation price for this short position is 1.6995 USDT.


 

What Happens to The Margin After Liquidation?

When a position is liquidated:

Initial Margin: The margin provided is used to cover the loss.

Remaining Margin: If there is any remaining margin after deducting the losses, it is transferred to the platform’s Insurance Fund.

An insurance fund is a reserve set aside by a cryptocurrency exchange or trading platform to protect against losses from liquidations, unexpected events, or other risks. For more information, visit our Insurance Fund article.

 

Tips for Managing Liquidation Risk

  1. Monitor Leverage and Position Size: As your position grows, it may move into a higher tier. Higher tiers require more maintenance margin and allow lower maximum leverage. This generally reduces relative liquidation risk if you maintain enough margin.

  2. Maintain Sufficient Margin: If the market moves against your position, adding funds can help maintain the required margin level and reduce liquidation risk.

  3. Set Stop Loss Orders: A stop-loss order can help protect your position by automatically closing it before reaching the liquidation price.

  4. Diversify Positions: Avoid putting all your capital into one position. Diversification reduces the impact of a single market movement.

 

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