Liquidations: mechanics and maths

A leveraged position is worth more than you put in: $1,000 of margin at 10× holds a $10,000 position. The loss is computed on the whole position but covered from the margin. A 1% move against you is −$100, i.e. 10% of margin. Loss in percent of margin = price move × leverage.

The exchange cannot let a loss exceed the margin: someone else — the winning side — would have to cover the gap. So every position has a line at which the exchange closes it itself, without asking the owner. That is a liquidation — a forced close of a position when almost no margin is left. The line is set not by zero margin but by maintenance margin — the minimum balance that must remain on the position while it is open (more in the second lesson).

Most large exchanges check the trigger not against the last trade but against a fair (mark) price — a price the exchange derives from several venues. That way one random trade in a thin book does not wipe out everyone's positions.

A position can only be closed by an opposite trade. A long is closed by selling, a short by buying. Therefore:

• liquidating a long is a forced market sell;
• liquidating a short is a forced market buy.

Long liquidations happen when the price falls and add sells exactly where the price is already falling. Short liquidations happen on rises and add buys. These are market orders nobody chose: the owner might have preferred to keep holding, but the decision was made for them. On the tape they look like ordinary aggressive trades, and the exchanges' separate liquidation feed shows which ones were forced. How such closes chain into each other and what a map of possible levels shows is the topic of section 13.

Where liquidations are in EVA:

• the “Liquidations” block in the “Book · Flow” panel — a feed of forced closes: time, coin, side, price and amount. The side tells who got wiped out: longs — the price was going down, shorts — up. Only closes from $100,000 make it into the feed — “no liquidations” here means “no large ones”;
• the “Money” tab, “Liquidations” block — how much was wiped out from longs and shorts over an hour, 4 hours or a day across all terminal coins, and the five largest.

Coverage differs by exchange: Bybit, Gate and Kraken Futures send every liquidation; OKX — a history that is included while the sample is fresh; Binance and Bitget — at most one liquidation per second per coin, so some small ones are not visible there. Hyperliquid's public data does not mark liquidations, so it is not in the totals. Under the total it says how many coins and exchanges it covers — totals from different services can only be compared at the same coverage.

A position has two margins. Initial — what you must post to open: position value / leverage. Maintenance — the minimum the balance must not fall below: position value × the maintenance rate. The exchange sets the rate, usually fractions of a percent for small positions, and it rises in steps with position value: a large position needs a bigger buffer because closing it at market is harder.

Liquidation comes when the margin balance (posted margin plus unrealised result) falls to the maintenance level. For a long with entry E, leverage L and maintenance rate m this gives E/L + (P − E) = m × P, hence:

long: P ≈ E × (1 − 1/L) / (1 − m);
short: P ≈ E × (1 + 1/L) / (1 + m).

For a mental estimate a simplification is enough: distance to liquidation ≈ 1/L − m. A 10× long at m = 0.5%: 10% − 0.5% = 9.5% below entry.

Why is liquidation closer than “100% / leverage”? Because “100% / leverage” is the move at which the margin would be gone entirely. But the exchange does not wait for zero: it closes the position when the balance reaches maintenance, to have time to close at market without going negative. On top of that, the closing fee is reserved. Both eat into the buffer.

At low leverage this part is invisible, at high leverage it is decisive. At m = 0.5%: at 5× liquidation is 19.6% away instead of 20% (98% of the buffer remains), at 20× — 4.52% instead of 5% (90%), at 50× — 1.51% instead of 2% (75%), at 100× — 0.50% instead of 1%: maintenance margin eats half the buffer. And as position value grows, m rises and the buffer shrinks further.

Maintenance tiers are worth checking at least once on your exchange. Illustrative example: up to $50,000 of position value the rate is 0.5%, while at a tier of several million it is 1% or more. A 20× long on a small amount is liquidated about 5% − 0.5% = 4.5% from entry. The same 20× long at the 1% tier — already at 5% − 1% = 4%. Nothing changed but the amount, yet the buffer shrank by a ninth. That is why exchanges cap leverage for large positions: at a 2.5% rate, 40× would leave 2.5% − 2.5% = 0 to liquidation.

Three things move the liquidation price.

• Leverage. The higher, the closer: at 2× a long survives a drop of almost 50%, at 50× — about 1.5%.
• Added margin. Adding margin to an isolated position lowers the effective leverage and moves the liquidation price away from the current one. A 10× long from $100,000 with $10,000 of margin on 1 BTC: add another $5,000 — margin is now 15% of the position, and liquidation moves from about $90,452 to $85,427 (100,000 × 0.85 / 0.995).
• Adding to the position. Adding to a long on the way up raises the average entry, and the liquidation price with it. The position got bigger, the buffer to liquidation smaller.

Cross margin pushes liquidation further away using the whole free balance. It feels safer, but the cost of a mistake is different: with isolated margin you know in advance how much you can lose on this position, with cross you do not.

A stop and a liquidation are different things. You place the stop order, at a level you chose, with a loss you computed in advance. The exchange triggers liquidation when almost no margin is left, and you lose practically all of the position's margin; what remains of maintenance is usually not returned to you but goes to the close.

Illustrative example. A 10× long from $100,000, margin $10,000. Stop at $95,000 (−5%): loss $5,000 — half the margin, plus entry and exit fees (at 0.05% per side — about $50 for the entry and as much for the exit). After the stop about $4,900 is left in the account, and what to do next is your decision. Liquidation at ≈ $90,452: the entire $10,000 margin is gone.

A stop is not perfect either: it becomes a market order on trigger and in a fast market fills with slippage. But a stop placed well before the liquidation price is a boundary you set. A position whose only protection is liquidation means the exchange decides how big the loss is.

How to read liquidations without turning them into a signal:

• Side. Longs wiped out — the price went down and finished off leveraged buyers; shorts — the reverse. This explains a move that has already happened.
• Series or single. One line in the feed is noise; several in a row at nearby prices means forced orders pushed the price. A sharp move without news is often explained exactly by this.
• Together with OI. Liquidations are closes, so a large wave usually also shows up as falling open interest.
• Coverage. The total depends on exchanges and window; some exchanges do not publish everything. Two totals are comparable only with matching captions.