Liquidation Price Calculator
A liquidation price calculator online might come in handy when you need to calculate at what price level your leveraged position in Crypto, Forex, Stocks, or any other asset class gets liquidated to add a protective stop to mitigate risk.
This is useful for leverage trading traders who want to know how much risk they can take for each trade. Our tool below uses a formula to calculate the liquidation price based on the entry price + leverage ratio.
Other factors such as leveraged fees, position size, and other interest payments have been excluded since they are variables that don’t directly affect the level of liquidation of a leveraged position.
This calculator also assumes that you are using an isolated margin for one single position and does not take into consideration the additional margin you might have in your account.
How to use the liquidation price calculator
Follow this simple step-by-step guide to find out the liquidation price of your trade.
- Input the entry price (e.g $250, or $24.000)
- Add your leverage ratio. (e.g 5, 10, 55, or 155..)
- Click Calculate.
Liquidation Price Calculator
Not sure how to use the result? Here are 7 tips
- Use the result to compare it to the entry price and see how many points in price your position can move against you.
- The closer the liquidation level is to your entry price the higher risk your position will have.
- To reduce the risk simply reduce the leverage ratio.
- Use the liquidation price to set your stop loss order to guarantee that your account stays within risk limits.
- Determine your margin requirement before opening a trade.
- Compare the liquidation price of different trades to see which one has the best risk/reward.
- Evaluate the potential risk/reward of your trade to see if it has a positive expectancy.
Definition of a liquidation price calculator
A liquidation price calculator is a tool that traders use to find out at what price their leveraged position will get liquidated if the market were to go the wrong way.
It is an essential tool for both long-term and short-term traders who want to have full control of their risk while operating with leverage ratios that are higher than 1:2 to 1:5.
It can also be used to measure the potential risk and reward of a trade before entering since you will be able to set a better stop loss order if you know at what level you will be knocked out.
Keep in mind that the liquidation price is not the same as a margin call where the broker will send you a notification that you are running out of margin requirements.
How to calculate the liquidation price
To calculate the liquidation price you first need to know at which leverage ratio you are trading.
Let’s say that you are trading a leverage ratio of 1:65.
The first step is to calculate the distance to your liquidation point in percentage.
To do this simply divide 100 by 65.
100 / 65 = 1.54%
Now you know that your liquidation price is 1.54% away from your entry price.
All that is left to do is to calculate 1.54% below the entry price of the asset you are currently trading.
As an example, we assume that you are trading the Tesla stock which is currently priced at $233.
Now, deduct -1.54% from the price of $233.
233 x 0.0154 = $3.60
The last step is to subtract this from the entry price.
233 – 3.60 = $229.40
The liquidation price in this example is $229.40.
Liquidation price formula
Here is a summary of the liquidation price formula.
Calculate liquidation distance in percentage = 100 / Leverage Ratio (100/65 = 1.54%)
Calculate the liquidation distance in price = Current Asset Price x Distance In Percentage ($233 x 0.0154% = $3.60)
Calculate the liquidation price = Current Asset Price – Liquidation Price Distance ($233 – $3.60 = $229.40)
A brief overview of how it works
The liquidation price is calculated by taking into account the opening price of a trade and the leverage ratio.
For example, if you wish to use a leverage ratio of 1:10 and open a stock trade at $500, the calculator will calculate at what price your position would suffer full bankruptcy.
Depending on what leverage ratio you choose to use and at what price you enter your trade the result will be different.
Both inputs will affect the final price, for example, if you choose to reduce the leverage ratio your liquidation level will fall.
Explanation of the formula used to calculate liquidation price
The liquidation price is calculated by using the formula: liquidation price = entry price – (1/leverage ratio) * entry price.
This formula is based on the idea that the liquidation price is the point at which the trade is closed due to a 100% loss of margin.
The leverage ratio is the driver of the potential distance to the maximum loss.
How leverage ratio affects the liquidation price
The leverage ratio has a direct impact on the result since the more you borrow the less “wiggle-room” your trade has.
An increase in leverage will subsequently reduce the distance to full liquidation.
On the contrary, choosing a lower leverage ratio will give the position more room to move on.
How entry price affects the liquidation price
The entry price is the starting point of the calculation and it is from here the price is calculated.
A higher entry price will affect the level of liquidation by increasing the price and a lower entry price will mean a lower liquidation price.
Why a liquidation price calculator matters to traders
There are several reasons why a trader should learn how to calculate the liquidation price.
First and foremost, a trader who wants to avoid getting liquidated needs to know at what price the position will suffer from bankruptcy.
Secondly, evaluating which trade might be the better choice is essential when looking at a risk-to-reward scenario.
Finally, monitoring an open position gets easier if you can calculate the total risk in order for you to choose the right amount of margin and leverage.
Setting stop-loss orders
Stop losses are a big part of every trader’s risk-mitigation strategy.
After calculating the liquidation price you can safely add a protective stop at the right distance from your entry price.
The stop loss will then automatically close your position at a reasonable loss.
This helps limit the losses and creates more control over the outcome of the trade.
Evaluating risk and potential return before entering a trade
Before entering a trade you can easily evaluate the risk and reward situation of any given setup.
As long as you know your entry price and your leverage ratio you can then determine how much you would possibly risk in margin for a trade that has an isolated margin.
Choosing a lower leverage ratio will free up more capital to take on more trades at the same time.
Monitoring open trades
While you have one or several trades open you can quickly check their liquidation levels and determine which one of the trades is closest to their liquidation price.
This can be useful information in order to make necessary adjustments to positions that have moved against you.
By closing out some of the worst trades you can smooth out your losses for any given month.
This will also free up margin requirements that you can add to your current winners.
Adapting to changing market conditions
Knowing the liquidation price is a good way to prepare for unforeseen market events or in case there is going to be a big news release.
If you know there is going to be a release of important news later on during the day and you have a position close to its liquidation price you might want to make some last-minute changes or adjustments before the news goes live.
If you are a day trader that uses leverage and you want to know which trade has the best outlook you can calculate the liquidation price to see which one of the trades looks best.
This can help you by preventing you from entering into weak trades.
Making decisions before you enter the market is always favorable.
Frequently asked questions
In order to set better stop loss orders you should first calculate the current liquidation price. Once you know the correct level you can add your stop loss orders at a higher level to prevent outsized losses.
The process of assessing at what level your asses will suffer a complete loss can be done by using the correct formula for your trade. In the case of a leveraged position with an isolated margin the formula is liquidation price = entry price – (1/leverage ratio) * entry price
The calculator can not determine the margin requirements for a specific trade. To do this you need to use one of our leverage calculators.
The liquidation price calculator helps traders find out at which level their leveraged position will suffer from liquidation.
This information can help traders make more informed decisions seen from a risk-mitigation point of view.
Knowing the formula for how the liquidation level is calculated will help you position yourself better for future trades.
This can be done by either lowering your leverage ratio on weak trades or increasing it on trades that look more promising.
This tool can also help traders manage their portfolios by making quick adjustments to positions that might be too risky.
Here are some helpful articles if you are interested in how you can protect yourself against risk.