Liquidation Price (USDT Contracts) Explained

Understanding Liquidation in Trading

Liquidation occurs when the mark price reaches the liquidation price, triggering an automatic closure of the position at the bankruptcy price (price level where margin hits 0%). At this point, the remaining position margin falls below the maintenance margin requirement.

Example Scenario:
If the liquidation price is 15,000 USDT and the current mark price is 20,000 USDT, liquidation activates when the mark price drops to 15,000 USDT, indicating unrealized losses have depleted the maintenance margin.

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Calculating Liquidation Price

(A) Isolated Margin Mode

In isolated margin mode, each position uses dedicated margin funds, separate from the trader's account balance. This limits maximum loss to the allocated position margin.

Formulas:

• Long Position:
  Liquidation Price = Entry Price − [(Initial Margin − Maintenance Margin) / Contract Size] − (Added Margin/Contract Size)
• Short Position:
  Liquidation Price = Entry Price + [(Initial Margin − Maintenance Margin) / Contract Size] + (Added Margin/Contract Size)

Key Notes:

• Initial Margin (IM) = (Contract Size × Entry Price) / Leverage
• Maintenance Margin (MM) = (Position Value × MMR) − Maintenance Margin Deductions
• MMR varies by risk limit tier.

Examples:

1. Long Position:

   • Entry: 20,000 USDT | Size: 1 BTC | Leverage: 50x
   • IM = 400 USDT | MM = 100 USDT
   • Liquidation Price = 19,700 USDT

2. Short Position with Added Margin:

   • Added 3,000 USDT margin → New Liquidation Price = 23,300 USDT

3. Funding Fee Impact:

   • If 200 USDT is deducted from position margin:
   • Liquidation Price adjusts to 19,900 USDT

(B) Cross Margin Mode

In cross margin, liquidation prices fluctuate as available balance is shared across all positions. Liquidation occurs only when:

1. Available balance = 0,
2. Maintenance margin is insufficient.

Calculation Logic:

• Profitable Positions:

  • LP (Long) = [Entry Price − (Available Balance + IM − MM)] / Net Position Size
  • LP (Short) = [Entry Price + (Available Balance + IM − MM)] / Net Position Size

• Losing Positions:

  • Uses current mark price instead of entry price.

Example 1:

• Long 2 BTC at 10,000 USDT (100x leverage) | Available: 2,000 USDT
• LP = 9,050 USDT

Example 2 (Partial Hedging):

• Long 2 BTC + Short 1 BTC → Net exposure = 1 BTC
• LP (Long) = 6,450 USDT

Example 3 (Multi-Contract):

• BTCUSDT: LP = 16,900 USDT
• ETHUSDT: LP = 2,280 USDT

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FAQs

Q1: Why did my position liquidate even before hitting the calculated price?

A: Fees (e.g., funding rates) or sudden mark price volatility can trigger early liquidation.

Q2: How does cross margin protect against liquidation?

A: Shared available balance buffers losses but requires monitoring all positions collectively.

Q3: Can funding fees increase liquidation risk?

A: Yes. Deducting fees from margin reduces the buffer, pushing LP closer to mark price.

Q4: What happens to fully hedged positions?

A: No liquidation risk as profits offset losses (e.g., equal long/short in same contract).

Q5: How often should I update my liquidation price estimates?

A: Recalculate after adding margin, changing leverage, or significant price movements.

Key Takeaways

• Isolated Margin: Fixed loss cap; LP depends on entry price and margin.
• Cross Margin: Dynamic LP; influenced by portfolio-wide P&L.
• Monitor: Funding fees, mark price shifts, and multi-position exposure.

Always verify calculations using real-time data and margin tools.