Mark price and margin modes
Liquidations often feel arbitrary, but they aren't. The mark price, maintenance margin, and your chosen margin mode determine the actual moment - not the last traded price.
Learning objective: After this lesson, you can explain why the mark price decides liquidation, and what isolated versus cross margin means for your risk.
A liquidation isn't based on the price you last saw on your own platform. Exchanges calculate it using a smoothed mark price that tracks the wider market, not the single last-traded price on that one platform. That's meant to stop a single outlier on one exchange from wiping out thousands of positions unnecessarily.
For you, that means: your position can get liquidated even though your platform's chart never seemed to touch your expected liquidation price - and, the other way around, it can sometimes narrowly survive a move your local chart already treats as an alarm.
Then there's maintenance margin: the minimum amount of security a position needs at all times. If the position's equity drops below it, the position gets closed - even before the margin is fully used up. That's why the actual liquidation happens a bit earlier than the naive "100 divided by leverage" calculation suggests.
The mode matters too. With isolated margin, only the margin assigned to that one position is at risk - the loss is capped, but liquidation comes sooner. With cross margin, your entire account balance backs the position - it survives longer, but in a bad scenario can take the whole account down with it.
Anyone who mixes up the two margin modes often ends up wondering afterward why a single trade hit their entire account balance, even though only a small part of it was meant as the stake. That's the typical case: a position ran in cross mode by accident, because that was the platform's default, not because it was a deliberate choice.
Funding payments are deducted directly from a position's margin on many platforms, not from the rest of the account balance. Someone holding a position for days will see their liquidation price slowly creep closer as a result, without the underlying price having moved at all. It's a quiet effect that never shows up in any chart view.
There's no guarantee on the execution price either. During a fast price gap, the actual close can happen below the calculated threshold. Combined with maintenance margin, funding, and closing fees, that's why real liquidations almost always land a bit earlier - and often worse - than the naive back-of-envelope calculation.
Summary
- Liquidation is based on the smoothed mark price, not the last traded price.
- Maintenance margin makes liquidation kick in a bit earlier than the naive calculation suggests.
- Isolated margin caps the loss at the assigned margin; cross margin puts the whole balance at risk.
- Funding is often deducted straight from the position margin and nudges the liquidation price closer, even without any price move.
Did you get it?
Why was I liquidated when the price never reached my liquidation price?
Because the exchange uses the mark price, not the last traded price.
Why was I liquidated before the calculated threshold?
Because maintenance margin and applicable fees kick in earlier.
What is the difference between isolated and cross margin?
With isolated, only the assigned margin is at risk; with cross, your entire balance is.
Check your understanding
Related
- LiquidationStage 2
- LeverageStage 2
- Maker, taker, and fundingStage 1
- Leverage and liquidation simulatorCalculator
- Matching questions for this stageQuestions