The Unified Trading Account (UTA) offers traders multiple margin modes, including Isolated Margin. This mode allocates a specific amount of margin to a single position, isolating it from the rest of the account balance. It allows for precise risk management, as the maximum loss from liquidation is limited to the allocated position margin.
Liquidation occurs when the mark price reaches the liquidation price. At this point, the position is closed at the bankruptcy price (0% margin level), indicating the position margin has fallen below the required maintenance margin.
This guide details the liquidation price calculation formulas for various derivatives within the UTA's Isolated Margin mode.
Key Concepts in Margin Trading
Before diving into calculations, it's crucial to understand the core components that determine your liquidation price.
Initial Margin
This is the amount of capital you must commit to open a leveraged position. It is calculated as the position value divided by your chosen leverage.
Maintenance Margin
This is the minimum amount of equity that must be maintained in your position margin to keep it open. If your margin balance drops to this level, liquidation is triggered.
Mark Price
The mark price is used to calculate unrealized PnL and avoid liquidation caused by market manipulation or illiquid markets. It is based on the global spot price index and a decaying funding basis rate.
Liquidation for Inverse Perpetual and Futures Contracts
Inverse contracts, like BTCUSD, are quoted and settled in the cryptocurrency itself.
Calculation Formulas
Long Position (Buy/Long)
- Liquidation Price (Long) = Entry Price / [1 - (1 / Leverage) + (Maintenance Margin Rate)] - (Added Margin / Contract Size)
Short Position (Sell/Short)
- Liquidation Price (Short) = Entry Price / [1 + (1 / Leverage) - (Maintenance Margin Rate)] + (Added Margin / Contract Size)
Note: The Maintenance Margin Rate (MMR) is based on your chosen risk limit. There may be a slight variance between the calculated and actual liquidation price due to closing fees.
Practical Example
A trader opens a 1 BTC short position on BTCUSD with 10x leverage at an entry price of $50,000. The MMR is 0.5%, and no extra margin is added.
- Position Value = 1 BTC
- Initial Margin = 1 / 10 = 0.1 BTC
- Maintenance Margin = 1 × 0.5% = 0.005 BTC
Using the short position formula:
Liquidation Price = 50,000 / [1 + (1/10) - 0.005] = 50,000 / 1.095 ≈ $45,662.10
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Liquidation for USDT Perpetual Contracts
These linear contracts are quoted and settled in USDT, making PnL calculation straightforward.
Calculation Formulas
Long Position (Buy/Long)
- Liquidation Price (Long) = Entry Price × [1 - (1 / Leverage) + (Maintenance Margin Rate)] - (Added Margin / Position Size)
Short Position (Sell/Short)
- Liquidation Price (Short) = Entry Price × [1 + (1 / Leverage) - (Maintenance Margin Rate)] + (Added Margin / Position Size)
Note: The Maintenance Margin Rate (MMR) is determined by the contract's risk limit.
Practical Example
A trader buys 1 BTC of a USDT Perpetual contract at $40,000 with 50x leverage. They then manually add $3,000 USDT to the position margin. The MMR is 0.5%.
- Initial Margin = (1 × 40,000) / 50 = 800 USDT
- Maintenance Margin = (1 × 40,000) × 0.5% = 200 USDT
Using the long position formula:
Liquidation Price = 40,000 × [1 - (1/50) + 0.005] - (3,000 / 1)
Liquidation Price = 40,000 × [1 - 0.02 + 0.005] - 3,000
Liquidation Price = 40,000 × 0.985 - 3,000 = 39,400 - 3,000 = $36,400 USDT
Liquidation for USDC Perpetual Contracts
USDC contracts are similar to USDT contracts but feature an 8-hour settlement mark-to-market (MTM) mechanism.
Calculation Formulas
The formulas for USDC contracts are structurally similar to those for USDT contracts. However, the key difference lies in the periodic settlement.
After each 8-hour settlement, the average entry price is updated to the mark price. This new price is then used to recalculate closing fees and the maintenance margin. The initial margin displayed will remain based on the original entry price, with settled PnL and fee differences being factored into it.
Practical Example
A trader opens a 1 BTC short position with 10x leverage at a $10,000 entry price. The MMR is 0.4%.
Initial Calculation:
- Position Value = 1 × 10,000 = 10,000 USDC
- Initial Margin = 10,000 / 10 = 1,000 USDC
- Maintenance Margin = 10,000 × 0.4% = 40 USDC
- Liquidation Price (Short) = 10,000 × [1 + (1/10) - 0.004] = 10,000 × 1.096 = $10,960 USDC
Post-Settlement Update:
At the next settlement, the mark price is $9,900. The realized PnL for the period is $100. The average entry price updates to $9,900.
The maintenance margin is recalculated using the new price ($9,900 × 0.4% = $39.6). The initial margin is adjusted by the settled PnL. The liquidation price will be recalculated accordingly, resulting in a minor change.
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Frequently Asked Questions
What is the main advantage of using Isolated Margin mode?
The primary advantage is defined risk. Your maximum potential loss is strictly limited to the margin you allocated to that specific position. This prevents a single bad trade from liquidating your entire account balance, which is a risk in Cross Margin mode.
How often is the mark price updated?
The mark price is updated in real-time, typically every few seconds, by aggregating price data from major spot exchanges. This ensures a fair and manipulation-resistant value for calculating PnL and liquidation levels.
Why did my position get liquidated even though the last traded price didn't reach my liquidation price?
Liquidations are triggered by the mark price, not the last traded price. The last traded price can be subject to short-term volatility and market manipulation on a single exchange, whereas the mark price provides a more stable and reliable benchmark based on a global index.
Can adding more margin to a position lower its liquidation price?
Yes, absolutely. Manually adding more margin to an isolated position increases the buffer between your current equity and the maintenance margin level. This action directly lowers the liquidation price for a long position or raises it for a short position, making the position safer.
What happens to the remaining margin after a liquidation?
In Isolated Margin mode, only the margin allocated to that position is at risk. If the position is liquidated, the entire allocated margin is lost to cover the loss. Any remaining balance in your main account or allocated to other isolated positions is untouched.
Does higher leverage always mean a closer liquidation price?
Yes, higher leverage means you are committing less initial margin for the same position size. This results in a smaller safety buffer, moving your liquidation price much closer to your entry price compared to using lower leverage.