Leverage, margin and liquidation
- What leverage actually changes
- Estimate a liquidation price
- Why stops must sit well before liquidation
Leverage changes margin, not risk
With 20× leverage, a $10,000 position needs $500 of margin. Your risk on a trade is still set by the position size and the distance to your stop: a $10,000 position with a 2% stop loses $200 at the stop at 5× or 50×. What leverage changes is how much margin is locked up — and how close liquidation is.
Liquidation
If losses eat your margin down to the exchange's maintenance requirement, the exchange closes the position for you — a liquidation, usually with an extra fee. Roughly, on isolated margin the liquidation is about 1 ÷ leverage away from entry, minus the maintenance margin:
| Leverage | Approx. distance to liquidation |
|---|---|
| 5× | ~19% |
| 10× | ~9.5% |
| 20× | ~4.6% |
| 50× | ~1.6% |
| 100× | ~0.6% |
(Exact figures depend on the pair's maintenance margin tiers and your margin mode.)
The rule
Your stop must be far closer than your liquidation price. If a normal stop for the setup is 3% away and you use 50× leverage, you will be liquidated before your stop — the exchange decides your exit, at a worse price, with a fee. Choose the stop from the chart, the size from your risk %, and the leverage only so that liquidation is comfortably beyond the stop.
Check yourself
1. Same position size and stop, leverage raised from 10× to 20×. Your loss at the stop…
- Doubles
- Stays the same ✓
- Halves
2. At 20× isolated, roughly how far is liquidation?
- ~20%
- ~4.6% ✓
- ~0.5%
3. Your setup needs a 3% stop. Which leverage is safe?
- 50×
- 20×
- 10× or less — liquidation well beyond 3% ✓
Terms in this lesson
- Isolated / cross margin
- Margin per position vs shared across the account.
- Leverage
- Position size ÷ margin. Changes margin and liquidation distance, not risk at the stop.
- Liquidation
- The exchange force-closing a position whose margin is exhausted.
- Margin
- Collateral locked to hold a leveraged position.