How to Calculate Liquidation Price in USDT Contracts: A Complete Guide

Liquidation Price is a key indicator for futures traders, which determines the critical level at which a position is forcibly closed. Understanding the liquidation mechanism and methods for calculating the liquidation price is essential for effective risk management when trading with leverage.

The liquidation process is initiated when the mark price drops to the liquidation price level, leading to the position being closed at the bankruptcy price (when the position margin reaches 0%). This indicates that the available margin has fallen below the minimum required maintenance margin. For example, if the liquidation price is set at 15,000 USDT and the current mark price is 20,000 USDT, a decline to 15,000 USDT will trigger liquidation, as unrealized losses approach the critical threshold.

What triggers liquidation and how it works

The liquidation mechanism activates when the mark price reaches the set liquidation price level. At this point, the unrealized loss of the position approaches the maintenance margin, meaning there are insufficient funds to sustain the open position.

The position’s margin balance, initially deposited by the trader, gradually decreases due to unrealized losses. When this balance falls below the required minimum maintenance margin, the system automatically closes the position at the current market price, which may result in additional losses.

It’s important to note that the mark price may differ from the last executed price, providing a more accurate assessment of the current value of the position. You can check the actual mark price for your position in the trading interface of the platform, where all active positions and associated risks are displayed.

Liquidation price in isolated margin mode: formulas and examples

Isolated margin mode separates the margin used for a specific position from the overall account balance. This approach provides a clear risk boundary, as the maximum possible loss is limited to the margin allocated for that position.

Formulas for calculating the liquidation price:

For long positions: Liquidation Price = Entry Price − [(Initial Margin − Maintenance Margin) / Contract Size] − (Additional Margin / Contract Size)

For short positions: Liquidation Price = Entry Price + [(Initial Margin − Maintenance Margin) / Contract Size] + (Additional Margin / Contract Size)

Main parameters of the formula:

• Position value = Contract Size × Entry Price
• Initial Margin (IM) = Position value / Leverage
• Maintenance Margin (MM) = (Position value × MM rate) − MM deduction
• MM rate depends on the set risk limit

Practical example 1 (long position):

A trader opens a long position of 1 BTC at 20,000 USDT with 50x leverage. With a maintenance margin rate of 0.5%:

• Initial Margin = 1 × 20,000 / 50 = 400 USDT
• Maintenance Margin = 1 × 20,000 × 0.5% = 100 USDT
• Liquidation Price = 20,000 − (400 − 100) = 19,700 USDT

Thus, if BTC price drops to 19,700 USDT, the position will be liquidated.

Practical example 2 (short position with additional margin):

A trader opens a short position of 1 BTC at 20,000 USDT with 50x leverage and later adds 3,000 USDT of additional margin:

• Initial Margin = 1 × 20,000 / 50 = 400 USDT
• Maintenance Margin = 1 × 20,000 × 0.5% = 100 USDT
• Liquidation Price = 20,000 + [(400 − 100) + 3,000] = 23,300 USDT

Adding margin shifts the liquidation level higher, providing extra protection against liquidation.

Example 3 (impact of fees on margin):

When a trader lacks sufficient funds to cover funding fees, the required amount is automatically deducted from the position’s margin. If a trader has a long position of 1 BTC at 20,000 USDT (50x leverage) and owes 200 USDT in funding fees:

• Initial Margin = 400 USDT
• Maintenance Margin = 100 USDT
• New liquidation price = 20,000 − [(400 − 100) − 200] = 19,900 USDT

Deducting fees from the margin brings the liquidation price closer to the mark price, increasing the risk of forced closure.

Calculating liquidation price in cross margin mode: a dynamic approach

Cross margin mode differs from isolated margin in that the margin is shared across all positions in the account. This means the liquidation price in cross margin mode can constantly change depending on the results of other open positions.

In this mode, the initial margin for each position is calculated separately, but the remaining balance is distributed among all positions as a common safety cushion. The available account balance dynamically changes due to unrealized profits and losses across all open positions.

Algorithm for determining the liquidation level:

Liquidation is triggered only when the available balance becomes insufficient to cover the required maintenance margin. The total potential loss is calculated as the difference between the available balance and the needed maintenance margin.

Basic example:

A trader plans to open a long position of 2 BTC at 10,000 USDT with 100x leverage in cross margin mode. The current available balance is 2,000 USDT:

• Required maintenance margin = 2 × 10,000 × 0.5% = 100 USDT
• Total potential loss = 2,000 − 100 = 1,900 USDT
• The position can withstand a price drop of 950 USDT (1,900 / 2)
• The liquidation level will be 9,050 USDT (10,000 − 950)

When opening the position, the initial margin (200 USDT) is deducted from the available balance, leaving 1,800 USDT for the overall pool.

Development of the situation:

If the price rises to 10,500 USDT, creating an unrealized profit of 1,000 USDT:

• Total potential loss = 1,800 + 200 − 100 + 1,000 = 2,900 USDT
• The position can withstand a price decrease of 1,450 USDT (2,900 / 2)
• The new liquidation level will be 9,050 USDT (10,500 − 1,450)

Unrealized profit improves the position’s conditions, pushing the liquidation level further from the current mark price.

Formulas for cross margin mode:

For long positions with unrealized profit: Liquidation Price = Entry Price − [(Available Balance + Initial Margin − Maintenance Margin) / Position Size]

For short positions with unrealized profit: Liquidation Price = Entry Price + [(Available Balance + Initial Margin − Maintenance Margin) / Position Size]

For long positions with unrealized loss: Liquidation Price = Current Mark Price − [(Available Balance + Initial Margin − Maintenance Margin) / Position Size]

For short positions with unrealized loss: Liquidation Price = Current Mark Price + [(Available Balance + Initial Margin − Maintenance Margin) / Position Size]

Practical examples of hedging and position management

Scenario 1: Perfect hedging

Perfect hedging applies only to a single trading pair with equal contract sizes in cross margin mode. For example, a trader holds a long 1 BTC and a short 1 BTC in BTCUSDT:

The perfectly hedged position is almost immune to liquidation because unrealized profit in one leg fully offsets unrealized loss in the other, regardless of price movement.

Scenario 2: Partial hedging

A trader holds a long 2 BTC and a short 1 BTC with 100x leverage, with a available balance of 3,000 USDT. Current mark price is 9,500 USDT:

Long position: 2 BTC, entry at 10,000 USDT, unrealized loss 1,000 USDT Short position: 1 BTC, entry at 9,500 USDT

Calculating the liquidation price considers only the net exposure: abs(2 − 1) = 1 BTC. The short position will not be liquidated because, as the price rises, the long’s unrealized profit always exceeds the short’s loss.

• Initial margin = (1 × 10,000) / 100 = 100 USDT
• Maintenance margin = 1 × 10,000 × 0.5% = 50 USDT
• Liquidation price (long) = 9,500 − [(3,000 + 100 − 50) / 1] = 6,450 USDT

Scenario 3: Multiple positions across different pairs

A trader holds three positions with a total available balance of 2,500 USDT:

Long BTCUSDT: 1 BTC, entry 20,000 USDT, 100x leverage, unrealized loss 500 USDT, mark price 19,500 USDT Short BITUSDT: 10,000 BIT, entry 0.6 USDT, 25x leverage Short ETHUSDT: 10 ETH, entry 2,000 USDT, 50x leverage, unrealized profit 100 USDT

Initial calculations:

• BTCUSDT liquidation level = 19,500 − [(2,500 + 200 − 100) / 1] = 16,900 USDT
• BITUSDT liquidation level = 0.6 + [(2,500 + 240 − 60) / 10,000] = 0.788 USDT
• ETHUSDT liquidation level = 2,000 + [(2,500 + 400 − 100) / 10] = 2,280 USDT

If losses increase on the BTCUSDT long position, the available balance decreases, leading to recalculated liquidation levels for all positions. This dynamic reflects the interdependence of positions under cross margin.

Key principles of risk management through understanding liquidation price

The choice of margin mode influences trading strategy. In isolated margin mode, the liquidation level remains fixed, allowing precise planning of maximum loss. In cross margin mode, the dynamic nature of the liquidation price requires constant monitoring and careful management of interrelated positions.

When opening new positions or adding margin to existing ones, the liquidation prices of other positions may change. Unrealized losses reduce the available balance, bringing profitable positions’ liquidation levels closer to the current mark price.

Understanding how to calculate the liquidation price and continuously monitoring this indicator are essential for successful futures trading. Regularly checking current liquidation levels helps avoid unexpected forced closures and enables more efficient capital allocation among open positions.