Leverage and liquidation price in crypto futures

To know how much a trade risks, CryptoBruj multiplies two numbers: the capital you put into it and the leverage. The result is the size of the position. If you only look at the leverage number, you miss half of it.

Someone using 125x leverage can be very conservative, and someone using 5x can be very aggressive.

The first two risk exactly the same, even though one says 100x and the other 5x. The third uses “only” 20x and is the most dangerous: it moves ten times what you have.

When he did copy trading, CryptoBruj used at most 5% of the account per trade: with $5,000, about $250. At most, he suggests 10% of the account at 20x, and he reminds you what that means:

10% of the account × 20x = 200% of the account. It’s like trading your whole account at 2x.

In his futures-from-scratch livestream he adds the rule that completes the calculation: if the stop is hit, don’t lose more than 2 or 3% of the account. How to adjust the size so it fits is in the guide to stop loss and take profit.

Liquidation comes when the loss eats up the position’s margin. At 10x, a 10% drop wipes it out; at 20x, a 5% drop; at 50x, a 2% drop. The maintenance margin, the minimum the exchange requires you to keep, brings it a little closer.

For an isolated long, the rough calculation is:

Liquidation ≈ entry × (1 − 1/leverage) ÷ (1 − maintenance margin)

With a maintenance margin of 0.5%. For a short it’s the other way round: the liquidation price is above the entry. The figures are approximate: each exchange uses its own maintenance margin table, which goes up with size, and calculates liquidation with the mark price.

The video says the leverage number doesn’t matter if the capital is small, and for measuring risk that’s true. But leverage decides how close liquidation is, and that’s why in his futures-from-scratch livestream CryptoBruj sets a limit:

• Between 10x and 20x. That’s where he trades.
• Never more than 20x if you’re new. In his livestream he opens the same trade at 10x and at 50x: the 50x one loses five times faster and quickly gets close to a 100% loss.
• Don’t change it with the position open. Pick one and stick with it.

On most exchanges the fee is charged on volume: capital times leverage. It isn’t more expensive because you use 100x instead of 5x; it’s more expensive because the position is bigger. $100 at 20x pays the fee on $2,000, when you open and when you close.

Enter your entry, the leverage and the margin, and you’ll see the position size and the liquidation price. Try the same trade at 10x and at 50x.

• Looking only at the leverage number and not at the size of the position.
• Using low leverage with almost the whole account and thinking it’s a careful trade.
• Putting the stop beyond the liquidation price: liquidation comes first.
• Raising the leverage so a trade “fits” the margin.

If you don’t know yet which margin mode to use, see cross or isolated margin. And if you’re starting from zero, the guide to crypto futures from scratch.