Leverage and Liquidation: How to Calculate Risk and Set a Stop-Loss

In brief: Liquidation occurs when the loss on a position eats up almost all of the posted margin and the exchange forcibly closes the trade. The approximate distance from the entry price to liquidation is simple to calculate: (100% / leverage) − maintenance margin rate. At 10x leverage that is about a 9.5% move against the position; at 25x, about 3.5%; at 50x, about 1.5%. For comparison: this week bitcoin went from $79,890 (the 12 September high) to $76.8k — almost 4%, which was enough to wipe out every position with leverage of 25x or higher. Below are the working formulas, tables and the procedure that protects an account from that scenario.

What happened in the market this week

This is not an abstract exercise: September 2026 provides fresh material.

• 11 September: total liquidations on the crypto market of $451.09 million, hitting 94,216 traders. Longs liquidated: $353.45 million; shorts: $97.63 million. The largest single liquidation was $22.63 million (ETHUSDT on Bitget).
• 2 September: a similar episode — $367.73 million in a day, including $300.42 million in longs, across 90,090 accounts.
• Positioning: about 62.4% of accounts on Binance remained long, while total open interest fell by roughly $2.02 billion over three days.

In both cases the market did not "crash" — it moved 3–5%. The losses were created not by the price move but by leverage. For the week's context, see "Why bitcoin is falling today".

What leverage is, in plain terms

Leverage is the ability to control a position larger than your capital. You post $500 in margin and run a $5,000 position — that is 10x leverage. Profit and loss are calculated on the full position value, but the "fuel" is only your $500.

This leads to a consequence that is most often ignored: leverage does not increase the probability that you are right; it shrinks your margin for error. At 50x leverage, a position simply has no room for ordinary market noise.

The liquidation price formula

The exchange closes a position not when the margin hits zero but earlier — when your own funds fall to the maintenance margin level (maintenance margin rate, MMR). For liquid pairs this is usually a fraction of a percent of the position value, and the rate rises as the position gets larger.

For a long position (isolated margin):

Liquidation price ≈ Entry price × (1 − 1/Leverage + MMR)

For a short position:

Liquidation price ≈ Entry price × (1 + 1/Leverage − MMR)

Distance to liquidation in percent:

Move to liquidation ≈ (100% / Leverage) − MMR

At MMR = 0.5% the table looks like this:

Leverage	Move to liquidation	What that means on BTC at $77,200
2x	≈ 49.5%	about $38,200
3x	≈ 32.8%	about $25,300
5x	≈ 19.5%	about $15,000
10x	≈ 9.5%	about $7,330
20x	≈ 4.5%	about $3,470
25x	≈ 3.5%	about $2,700
50x	≈ 1.5%	about $1,160
100x	≈ 0.5%	about $390

Important adjustments that are rarely written about:

• Fees and funding move liquidation closer. Opening and closing as a taker usually costs a combined 0.1% or so of the position; at 100x leverage that is a fifth of your entire margin for error.
• MMR is not a constant. Exchanges apply a tiered scale: the larger the position, the higher the required maintenance margin and the closer the liquidation.
• Cross margin changes the picture. With isolated margin, only the margin of the specific position is at risk. With cross margin, the entire account balance serves as collateral: liquidation comes much later, but in a bad scenario it takes not one position but the whole deposit.

How to size a position from risk, not by eye

The correct order is the reverse of the usual one. First you decide how much you are willing to lose, then you derive the size from that.

Risk amount = Capital × Acceptable risk per trade (usually 0.5–2%)
Position size = Risk amount / Distance to stop-loss (in %)

Example. Capital of $5,000, risk per trade 1% = $50. Entry on BTC at $77,200, stop-loss below the local low at $75,800. Distance: (77,200 − 75,800) / 77,200 = 1.81%.

• Position size = $50 / 0.0181 = $2,762 (roughly 0.0358 BTC).
• Required margin at 10x leverage = $276; at 5x = $552.
• Round-trip fee at 0.05% = about $2.76 — this should also be deducted from the risk budget.

Note the key point: leverage here affects nothing except the amount of margin locked up. A $2,762 position with a 1.81% stop loses $50 regardless of whether you took 5x or 20x. Leverage becomes dangerous only when it is used to increase size rather than to save on collateral.

And a check that must always be done: with a $2,762 position at 10x leverage, the liquidation price is 9.5% away and the stop is 1.81% away. The stop triggers well before liquidation — as it should. If the stop turns out to be farther than the liquidation price, the leverage has been chosen wrongly.

Where to place a stop-loss

A stop-loss is an order to close a position when a set price is reached. The key mistake is placing it "at a comfortable percentage of the deposit". The market does not know about your deposit; it knows about its own structure.

Working guidelines:

1. Beyond a structural level. For a long — below the last significant low or the range boundary; for a short — above the high. If the level breaks, the idea is no longer valid.
2. Adjusted for volatility. A stop tighter than the average daily range (ATR) will be taken out by ordinary noise. In a week with a US Federal Reserve (the Fed) meeting and an expiration, stops need to be wider, and the position — per the formula above — automatically smaller.
3. Not inside "magnet" zones. Clusters of stops below round levels ($75,000, $80,000) are liquidity that the market regularly goes after.
4. Always before entry. The stop level feeds into the position-size calculation, so it is determined before the trade.

Why a stop-loss does not guarantee a price

• Slippage. A stop turns into a market order and fills at whatever price is available in the order book. During a liquidation cascade the book is thin, and the gap between the set and actual price is significant.
• Gaps. On the derivatives market the opening price can land far beyond the stop; the crypto equivalent is a "wick" on a news release.
• Failures. On some venues stop orders are canceled when the terminal reconnects — with a critical position size you cannot rely solely on a server-side stop.

The practical rule: a stop-loss limits the typical loss, not the maximum one. Only position size limits the maximum.

Funding: the hidden cost of perpetual contracts

Perpetual futures have no expiration — instead there is funding, a regular payment between longs and shorts that keeps the contract price close to spot. When longs dominate (this week their share on Binance stayed above 62%), longs pay.

A rate of 0.01% every 8 hours looks tiny, but that is 0.03% a day and about 11% a year on the size of the position, not on your margin. At 10x leverage that is already roughly 110% a year on the collateral posted, and in periods of heavy imbalance rates can be several times higher. The takeaway: a perpetual is an instrument for short holding periods.

What happens after liquidation: the insurance fund and ADL

• Insurance fund. If a position is closed at a worse level than the bankruptcy price, the exchange's insurance fund covers the difference. Part of the liquidation penalty goes to replenish it — which is why liquidation costs more than closing at a stop.
• ADL (Auto-Deleveraging). If the fund is insufficient, the exchange forcibly closes profitable positions on the opposite side, ranked by profitability and leverage. You can be right on direction and still lose your position at a moment of stress.

Leverage on the Moscow Exchange derivatives market: different mechanics

On the Russian derivatives market the term is not leverage but initial margin (GO) — the amount the exchange blocks against a position. It is well below the full contract value, which is what creates the leverage effect. The differences from crypto exchanges:

• the initial margin rate is set by the exchange and raised ahead of volatile events — regulator meetings and quarterly expirations;
• if funds run short, a request to top up the account (margin call) comes first, and only then does the broker close the position;
• on a sharp gap the loss can exceed the account balance, and the debt will have to be repaid — unlike isolated margin on a crypto exchange.

Current context: 16 September — the Fed meeting; 17 September — quarterly expiration on the Moscow Exchange (see our breakdown of September expirations).

FAQ

What leverage should a beginner choose? Sensible practice is not to exceed 2–3x and to treat leverage as a way to avoid locking up excess collateral, not as a size multiplier. Experienced traders in public guides most often cite a ceiling around 3x.

Can you trade without a stop-loss at all? Without leverage and on the spot market — yes, the risk is limited to the amount invested. With leverage — no: the exchange then effectively plays the role of the stop, and does so at the worst price.

Why was I liquidated even though the price came back? Liquidation is executed the moment the index or mark price touches the liquidation price. The subsequent return of the price no longer affects the position — it is closed.

What is the mark price? The reference price the exchange uses to calculate unrealized PnL and trigger liquidation. It is usually built on an index of several venues so that a local "wick" on one exchange does not knock everyone out. This is why the liquidation price can differ from the last trade in the order book.

Risks

Margin trading and derivatives trading are not suitable for everyone. Losses can exceed the initial investment and, on the derivatives market, the account balance as well. Volatility in the week of 14–18 September 2026 is known in advance to be elevated: 16 September — the Fed rate decision; 17 September — quarterly expiration on the Moscow Exchange; 18 September — quadruple witching in the US. In such periods liquidity drops, spreads widen, and stop orders fill worse than the set price.

Sources

• Crypto market review for 11 September — coinspot.io
• What liquidations are in crypto — RBC Crypto
• Position size and leverage: a guide to calculation and use — coinspot.io
• Crypto Liquidations Dashboard — CoinGlass
• Bitcoin Price Analysis September 13, 2026 — usethebitcoin.com