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Bankruptcy price is the mark price level at which a crypto futures position has consumed its entire initial margin, leaving account equity at exactly zero. It is not the price where a position closes. Positions close earlier, at the liquidation price, when the mark price crosses the maintenance margin threshold.
The gap between these two numbers is where the exchange’s futures liquidation engine operates. Understanding it explains what the insurance fund covers and when auto-deleveraging becomes relevant.
Positions do not close at the bankruptcy price. Liquidation fires first, at the liquidation price. The zone between the two is where the exchange absorbs surplus into the insurance fund or draws from it to cover shortfalls. At 50x leverage on a $50,000 entry, that zone is approximately $250 wide and can be crossed in seconds during fast market moves.
Bankruptcy price marks the exact level at which a position’s initial margin is fully exhausted. The formula uses entry price and leverage as its only inputs. It applies equally to perpetual futures and dated futures contracts trading under isolated margin.
Long position: Bankruptcy Price = Entry Price × (Leverage − 1) / Leverage
Short position: Bankruptcy Price = Entry Price × (Leverage + 1) / Leverage
A verified position example confirms the short formula: a 6x short entered at 0.3916 USDT carried a liquidation price of 0.4529 and a bankruptcy price of 0.4568. The gap between the two was 0.86% of entry.
Both thresholds are evaluated against the mark price, not the last traded price. Mark price is anchored to a spot index and filtered to smooth out order book spikes, which prevents artificial wicks from triggering forced closures.
These are two separate thresholds that describe different stages of a forced closure event.
Liquidation price is the maintenance margin trigger. When the mark price reaches it, the exchange’s liquidation engine takes over the position. The account still carries margin at this point: the maintenance margin buffer remains intact when the engine begins its work.
The zero-margin threshold is one step further down. All initial margin is consumed at this level. The liquidation engine attempts to close the position before this point is reached.
The gap between the two is the exchange’s working room. When the fill occurs inside that zone, the remaining margin flows to the insurance fund. When the market moves faster than the engine can respond, the gap becomes a deficit.
What most traders think: Their position closes at the bankruptcy price when the market moves fast enough. What actually happens: Positions close at the liquidation price. It is the internal floor the exchange uses for insurance fund accounting and ADL settlement.
Once the mark price hits the liquidation threshold, the engine takes over and three outcomes are possible depending on where the position fills.
The position closes between the liquidation price and the bankruptcy price. The remaining margin is a surplus. That surplus flows into the exchange’s insurance fund, adding to its reserves.
The position closes at a price worse than this level. A shortfall exists between the actual fill and the floor. The insurance fund covers that deficit using its reserves.
If the fund does not have enough reserves, auto-deleveraging (ADL) fires. Profitable counterparty positions are selected for forced reduction. The execution price is the bankruptcy price of the failing position, not the current market price.
When a position fills at a price worse than the bankruptcy price, the insurance fund covers the deficit. If the fund cannot absorb it, ADL fires. Profitable counterparty positions are then reduced at the failing account’s bankruptcy price, regardless of where the market is currently trading.
Most exchange interfaces show only the liquidation price in the position panel. It is the engine’s internal reference: the level that determines insurance fund settlements and ADL, not a number most platforms show during an active session.
In isolated margin mode, the level is fixed at the moment the position opens. In cross margin mode, it is dynamic. As other positions consume shared account equity, the margin backing any single trade decreases and the floor shifts closer to the entry price.
The gap between liquidation price and bankruptcy price shrinks as leverage increases. Below: a $50,000 BTC long position at four leverage levels using isolated margin.
| Leverage | Bankruptcy Price | Liq Price (approx.) | Liq to BP Gap |
|---|---|---|---|
| 5x | $40,000 | ~$41,000 | ~$1,000 (2.0%) |
| 10x | $45,000 | ~$45,500 | ~$500 (1.0%) |
| 20x | $47,500 | ~$47,750 | ~$250 (0.5%) |
| 50x | $49,000 | ~$49,250 | ~$250 (0.5%) |
The formula above applies to long positions. Liquidation prices are approximate, based on typical maintenance margin rates. Actual values vary by exchange, position size tier, and margin mode.
Most major exchanges apply the same underlying mechanics: the insurance fund absorbs surplus when positions close better than the bankruptcy price and covers deficits when they close worse. The formula is consistent across linear and inverse contract types, with minor rounding differences.
Bybit previously displayed bankruptcy price, referred to internally as bust price, alongside the liquidation price in the position panel. The bust price field was deprecated in the Bybit V5 API and now returns empty. Current Bybit interfaces show only the liquidation price.
Binance does not surface a separate bankruptcy price field in its API position data. The liquidation engine uses the threshold internally, but traders see only the liquidation price. On Binance and Bybit, the formula above calculates the figure for any isolated margin position.
Bankruptcy price is the mark price level at which a futures position’s initial margin is fully consumed and account equity reaches zero. It is not the price where the position closes. Liquidation fires earlier, at the liquidation price, when the maintenance margin threshold is breached.
Liquidation price triggers forced closure when the maintenance margin is consumed. This is the lower threshold at which all initial margin is gone. Positions close inside the gap between the two, not at the bankruptcy price itself.
When a position fills at a price worse than the bankruptcy price, the exchange’s insurance fund covers the shortfall. If the fund is insufficient, auto-deleveraging fires. Profitable counterparty positions are then reduced at the failing account’s bankruptcy price, not the current market price.
Most exchanges show only the liquidation price in the position panel. Bybit previously displayed it as bust price but deprecated the field in its V5 API update. The figure calculates directly from entry and leverage: Entry × (Leverage − 1) / Leverage for longs.
Bankruptcy price sits one level below liquidation price in the forced-closure sequence. Under normal conditions, the liquidation engine closes positions within the zone between the two thresholds, and the insurance fund absorbs the result.
When the market moves faster than the engine can fill, bankruptcy price becomes the reference determining whether the fund covers the shortfall or whether ADL fires on profitable counterparties. At high leverage in volatile markets, both scenarios occur more than most traders expect.
The formula is straightforward. What matters is the sequence: liquidation price fires first, the engine works in the gap, and bankruptcy price is the floor that sets the terms for everything that follows.
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