Liquidation Price Calculator
When you trade crypto with leverage, youâre betting more than you own. Thatâs risky. And if the market moves against you, your position doesnât just lose value-it gets liquidated. But who decides when? And how? Thatâs where the liquidation engine comes in. Itâs not a person. Itâs not a button you click. Itâs an automated system running in the background of every major crypto exchange and DeFi protocol, silently watching your position and pulling the plug when things go wrong.
What Exactly Is a Liquidation Engine?
A liquidation engine is a set of rules and algorithms that automatically close your leveraged position when your collateral falls below a critical threshold. Think of it like a safety valve on a pressure cooker. If the pressure gets too high, it releases steam before the whole thing blows up. In crypto, that âpressureâ is your positionâs risk level. When your collateral value drops too far, the engine steps in to prevent the entire system from collapsing. This isnât optional. Without liquidation engines, platforms would be exposed to massive losses. Imagine someone borrows $10,000 worth of ETH using $5,000 as collateral. If ETH crashes 50%, their collateral is wiped out-but they still owe the $10,000. If no one steps in, the lender loses everything. Liquidation engines exist to stop that exact scenario.How Liquidation Triggers Work
Every platform sets its own rules for when a position gets liquidated. The most common trigger is the maintenance margin requirement. This is the minimum amount of collateral you must hold to keep your position open. For example:- You open a 10x leveraged long on BTC with $1,000 in collateral. That means you control $10,000 worth of BTC.
- The platform sets a maintenance margin of 5%. That means you need at least $500 in collateral to stay safe.
- If BTC drops 10%, your position loses $1,000. Your collateral drops to $0. Youâre underwater.
- But the engine doesnât wait until youâre at $0. It triggers liquidation when your collateral hits $500-right when you hit the 5% threshold.
Centralized Exchanges: Speed Over Transparency
On centralized exchanges like BitMEX or Bibox, liquidation happens fast. The engine uses real-time market prices to close your position instantly. If thereâs enough liquidity, your order fills at the best available price. If not? Thatâs where Auto-Deleveraging (ADL) kicks in. ADL is controversial. Instead of letting you lose everything, the exchange takes profits from other traders who are still in winning positions. Itâs not random-itâs ranked. The most leveraged, profitable traders get hit first. Thatâs how the exchange covers your loss without going broke. But hereâs the problem: you donât know when ADL will trigger. You donât know whoâs next in line. You donât know if your position will be closed at $49,500 or $48,000 during a flash crash. That lack of transparency makes traders nervous. Reddit threads are full of people claiming their liquidations happened at âimpossibleâ prices-right after a big sell-off, right before a rebound.DeFi Protocols: Transparency Over Speed
In DeFi, liquidation is different. Itâs public. Itâs on-chain. Itâs governed by smart contracts you can read yourself. Take Fathom Protocol. Its liquidation engine is made up of five core components:- LiquidationEngine - The main controller
- FixedSpreadLiquidationStrategy - Defines how much discount is applied when selling your collateral
- CollateralPoolConfig - Sets your liquidation ratio (e.g., 80% collateral must remain after liquidation)
- BookKeeper - Tracks every position
- PriceOracle - Feeds real-time asset prices
Dolomiteâs Virtual Liquidity Model: A New Approach
Not all platforms play by the same rules. Dolomite introduced something called a virtual liquidity model. Instead of selling your collateral outright during liquidation, it temporarily reassigns your assets to other usersâ positions. Your debt gets covered by shifting collateral around inside the system, without flooding the market. This reduces slippage. It prevents price crashes caused by mass sell-offs. And it keeps the market functioning even during extreme volatility. Itâs clever. And itâs rare. Most platforms still rely on the old model: sell, sell, sell. Dolomite shows that liquidation doesnât have to mean panic selling. It can be a controlled, systemic adjustment.Auto-Deleveraging vs. External Liquidators: Which Is Fairer?
This is the big debate in crypto right now. On centralized exchanges, ADL means you might lose your position because someone else was too greedy with leverage. It feels unfair. But itâs fast. And it keeps the platform solvent. On DeFi, external liquidators mean you might get liquidated because no one wanted to pay $20 in gas fees. It feels slow. But itâs transparent. And you can audit every step. Thereâs no perfect answer. ADL protects the system but punishes profitable traders. External liquidators protect your rights but rely on market incentives that can fail. The best traders adapt. They donât just watch price. They watch the engine.What Traders Get Wrong About Liquidations
Most new traders think liquidation is about price. Itâs not. Itâs about collateral ratio. You can have a $10,000 position with $2,000 collateral. Thatâs 5x leverage. Liquidation at 80% collateral? Thatâs a 20% drop. But if youâre using 20x leverage with $500 collateral? Liquidation happens at just a 5% move. Another mistake? Assuming your stop-loss will save you. If the market gaps down-say, BTC drops from $60,000 to $57,000 in one second-your stop-loss might never trigger. The engine moves faster than your order. And finally, people forget gas fees in DeFi. If youâre waiting for a liquidator to act, and gas spikes to $50, that liquidator might wait. Your position stays at risk. Your money stays exposed.
How to Avoid Getting Liquidated
Hereâs what actually works:- Use less leverage. 5x is safer than 10x. 10x is safer than 20x. The higher the leverage, the smaller the move that kills you.
- Keep a buffer. If your liquidation price is $48,000, donât wait until BTC hits $48,500 to panic. Start reducing risk at $50,000.
- Know your platformâs rules. Is it ADL? External liquidators? Whatâs the close factor? Whatâs the liquidation ratio? Read the docs.
- Use a liquidation calculator. Most exchanges have one. Use it. Plug in your leverage, collateral, and asset. See exactly when youâll be closed out.
- Monitor oracle prices in DeFi. If the price feed is stale or manipulated, your liquidation might be based on bad data. Watch for updates.
Why Liquidation Engines Will Only Get More Important
Crypto derivatives volume hit $3 trillion per day in 2024. Thatâs more than the entire stock marketâs daily volume in some countries. And itâs growing. As more people trade with leverage, the stakes get higher. Liquidation engines arenât just technical tools-theyâre financial infrastructure. Theyâre the reason the system doesnât collapse when Bitcoin drops 20% in an hour. The future? Hybrid models. Fast execution with transparent rules. On-chain verification with off-chain speed. Layer-2 solutions that let you liquidate in milliseconds without paying $100 in gas. Right now, you have a choice: speed or transparency. But the best platforms will soon offer both.What Happens After Liquidation?
You lose your collateral. Thatâs it. No refunds. No appeals. No second chances. But hereâs something most people donât realize: your debt is gone too. Once the engine closes your position, you owe nothing more. The system absorbs the loss-either through ADL or by taking it from the liquidatorâs reward pool. Thatâs why liquidation isnât the end. Itâs a reset. You can come back. You can trade again. But if you donât learn why it happened, youâll just get liquidated again.What triggers a liquidation in crypto trading?
A liquidation is triggered when your positionâs collateral value falls below the platformâs maintenance margin requirement. For example, if youâre using 10x leverage, a 10% move against your position usually triggers liquidation. Each platform sets its own threshold, often between 5% and 10%.
Is Auto-Deleveraging (ADL) fair to traders?
ADL isnât designed to be fair-itâs designed to be functional. It protects the exchange from insolvency by taking profits from the most highly leveraged, profitable traders. While it prevents total losses for under-collateralized users, it can feel punitive to those who were winning. Itâs a systemic fix, not a personal one.
Can I avoid liquidation in DeFi by paying more gas?
No. Paying more gas doesnât stop your position from being liquidated-it just makes it more likely that someone else will trigger the liquidation faster. If you want to avoid liquidation, you need to add more collateral or reduce your leverage. Gas fees only affect who executes the liquidation, not whether it happens.
Why do liquidations happen at worse prices than expected?
During high volatility, liquidity dries up. The liquidation engine tries to close your position at the best market price, but if there arenât enough buyers, it has to sell at lower prices. On centralized exchanges, this can trigger ADL. On DeFi, it can lead to large discounts on collateral sales. Itâs not manipulation-itâs market mechanics.
Do all DeFi protocols use the same liquidation engine?
No. Each protocol designs its own engine. Fathom uses fixed spread strategies and oracle-driven pricing. Dolomite uses virtual liquidity to avoid market disruption. Demex requires external actors to trigger liquidations. Even small differences in parameters-like the close factor or liquidation ratio-can change how and when youâre closed out.
Can I manually liquidate my own position?
On centralized exchanges, no-you canât. The engine controls it. On DeFi, yes. Some protocols let you call the liquidation function yourself if youâre willing to pay the gas fee. This can be smarter than waiting for someone else to do it, especially if youâre close to liquidation and want to control the timing.
Whatâs the difference between liquidation price and bankruptcy price?
The liquidation price is when your position is automatically closed. The bankruptcy price is when your collateral is fully wiped out and you owe more than you have. Most platforms liquidate before bankruptcy to avoid losses. If you reach bankruptcy price, the system usually covers the deficit through ADL or reserve funds.
19 Responses
bro i just lost 3k on a 15x long because the engine liquidated me at $61k when btc was trading at $61.2k on binance... and then it bounced to $62.5k in 90 seconds đ
they say it's 'market mechanics' but come on... that's not luck, that's predatory algos.
the fact that ADL takes profits from winning traders just to cover losers? that's not finance, that's a casino rigged with code.
and don't even get me started on how the price feeds get delayed during volatility...
i've seen oracles lag 12 seconds during a flash crash and liquidate people at prices that didn't even exist.
we're not trading crypto anymore, we're playing russian roulette with smart contracts.
and the worst part? no one gets punished for this. the devs just shrug and say 'it's decentralized' like that fixes anything.
if you're not using a bot to monitor your liquidation price in real-time, you're already dead money.
i have 3 bots running 24/7 - one for price, one for oracle health, one for gas spikes on eth.
still lost 40% of my portfolio last month.
the system is designed to eat retail.
they want you to think it's your fault for being 'too leveraged' - but if the engine is hunting you like a predator, maybe the predator needs to be reprogrammed, not the prey.
and yes, i'm still trading. because i know how the game works now.
but i don't trust any platform anymore.
if it doesn't publish its liquidation logs on-chain, i won't touch it.
we need transparency, not just 'you can read the code' - we need auditable, real-time, public execution logs.
until then, i'm just a cow in the slaughterhouse, hoping the knife doesn't come too fast.
Thereâs a fundamental misunderstanding here: liquidation isnât a flaw - itâs a feature of leverage. Without it, counterparty risk would collapse the entire system. The issue isnât the engine; itâs the illusion of control.
When you use 20x leverage, youâre not betting on price - youâre betting on volatility not happening. Thatâs not trading. Thatâs gambling with borrowed time.
And yes, ADL is brutal - but itâs the only way to prevent cascading defaults. Imagine if every undercollateralized position had to be manually liquidated - the market would freeze for hours.
DeFiâs external liquidators are elegant in theory, but they rely on rational actors - and in a panic, gas spikes, oracle delays, and bot wars turn that elegance into chaos.
The real innovation isnât Dolomiteâs virtual liquidity - itâs the fact that weâre even having this conversation.
Five years ago, no one cared how liquidations worked. Now weâre auditing contracts, debating oracle reliability, and building bots to outsmart algorithms.
Thatâs progress.
Not perfect - but progress.
Respect the engine. Understand its thresholds. Never trade blind.
And if youâre still using stop-losses on centralized exchanges? Youâre already late.
they're lying to you. every single one of them.
the 'liquidation engine' is just a front for the whales to manipulate price.
you think it's coincidence that every time you're liquidated, btc dumps 3% and then rockets back?
no. it's programmed.
the exchanges have bots that watch for clustered leveraged positions - then they trigger a fake sell-off to trigger mass liquidations.
then they buy back at 20% off.
it's called 'liquidity harvesting'.
and the 'price oracle'? lol. it's fed by 3 exchanges that the same company owns.
they control the feed.
they control the liquidation trigger.
they control the rebound.
you're not trading crypto.
you're feeding the machine.
and they're laughing while your account goes to zero.
and don't even get me started on ADL - it's not 'fair' - it's a tax on the greedy.
but who decides who's greedy?
the same people who own the exchange.
we're not in a decentralized future.
we're in a centralized dystopia with blockchain glitter on it.
I just wanted to say thank you for writing this. Iâve been trading for 18 months and only now do I understand how liquidation works - and why I lost so much.
Itâs not about being dumb. Itâs about not having the right resources.
Iâm going to start using a liquidation calculator every time I open a position.
And Iâm lowering my leverage. No more 10x.
5x is enough.
Thank you for the clarity.
liquidation is just capitalism with extra steps
you think you're trading but you're just renting risk from a bank that doesn't have to hold capital
the fact that you're expected to understand smart contract math just to not get wiped out is insane
and don't even get me started on how they call it 'decentralized' when the top 5 protocols control 80% of the market
it's all just one big casino with a whitepaper
and the house always wins
and the house is coded by 22 year olds in san francisco who don't even own crypto
they just make the rules
and you're the guinea pig
enjoy your 10x leverage while it lasts
it won't
american traders think they're smart because they use bots and calculators
but in india we trade with our eyes and gut
we don't need your fancy oracle feeds
we know when the market is lying
when btc drops 5% and everyone panics - that's when we buy
when your engine liquidates you - that's when we open our position
you call it manipulation
we call it opportunity
you're scared of the engine
we use it as a signal
your system is broken
but our mindset? that's unbreakable
you lost your collateral?
we gained your fear
and we turned it into profit
that's why crypto is going to india next
not because of tech
but because we don't need your rules
we make our own
the real lesson here is that leverage isn't the problem
not understanding the rules is
i used to think liquidation was a failure
now i see it as feedback
if your position gets closed at 5% move - maybe you shouldn't have been at 15x
it's not the engine being mean
it's your strategy being weak
and honestly? i'm grateful for it
it saved me from blowing up my account twice
now i use 3x max
and i sleep better
the engine doesn't hate you
it's just telling you to grow up
hey new traders - if you're reading this, listen up.
you don't need to be a genius to survive crypto.
you just need to be patient.
start with 2x leverage.
set your stop-loss 10% away from your liquidation price.
use a calculator.
read the docs.
and most importantly - don't chase pumps.
the engine doesn't care if you're emotional.
it only cares about numbers.
you can learn this.
you can get better.
and you will - if you keep showing up.
i lost everything once.
now i'm back.
and i'm smarter.
you can be too.
just don't give up.
the beauty of this system is that it forces you to grow.
you think you're trading bitcoin?
no.
you're trading your own discipline.
every liquidation is a mirror.
what did you ignore?
what did you rush?
what did you hope would just work out?
the engine doesn't lie.
it just executes.
and if you're willing to learn from it?
you'll never be broke again.
you'll just be wiser.
and that's worth more than any collateral.
i lost my entire margin last week⌠and honestly? i cried.
not because of the money - but because i realized i was treating this like a game.
i didnât check the liquidation ratio.
i didnât set a buffer.
i just hoped.
and hope doesnât pay gas fees.
but this comment? itâs my reset.
iâm starting over.
with 2x leverage.
with a notebook.
with a calculator.
and with more respect.
thank you for writing this - it felt like someone finally saw me.
iâm not giving up.
iâm just starting again.
you think you're safe because you're using a 'trusted' exchange?
they're all the same.
they all have backdoors.
they all delay price feeds when they need to trigger liquidations.
and they all profit from your losses.
you're not trading.
you're being farmed.
and the 'engine'? it's just the farmer's tool.
you're the cow.
and they're milking you until you're dry.
and then they sell your skin for profit.
don't be fooled.
none of this is real.
it's all a pyramid with blockchain printed on it.
It is of paramount importance to underscore that the operational architecture of liquidation engines constitutes a non-trivial component of modern financial infrastructure in decentralized ecosystems.
One must acknowledge that the maintenance margin requirement, as a dynamically calibrated risk metric, functions as a critical equilibrium mechanism within leveraged derivative markets.
Furthermore, the distinction between centralized ADL protocols and decentralized external liquidators reveals a profound divergence in systemic resilience paradigms - one prioritizing speed at the expense of transparency, the other emphasizing auditability at the cost of latency.
It is thus imperative that market participants engage in rigorous due diligence prior to leveraging positions, as failure to comprehend the precise liquidation thresholds may result in catastrophic capital erosion.
Moreover, the integration of oracle reliability metrics into risk assessment frameworks represents a non-negotiable best practice in the current regulatory vacuum.
One must also consider the macroeconomic implications of high-frequency liquidation cascades during periods of extreme volatility - particularly as derivatives volume continues to outpace spot liquidity.
Therefore, I strongly recommend the adoption of layered risk mitigation protocols, including but not limited to: position sizing algorithms, oracle health monitoring bots, and pre-liquidation buffer zones.
May your collateral remain robust and your gas fees minimal.
in mexico we say 'el mercado no perdona' - the market doesn't forgive.
but it does teach.
i used to think liquidation was punishment.
now i know it's a lesson.
the engine doesn't care if you're from here or there.
it only cares if you're ready.
so i learned.
i stopped chasing.
i started watching.
i use less leverage.
i check the oracle.
i sleep now.
and i still trade.
just smarter.
that's all.
so like⌠liquidation is just when the bots kill you?
and the devs are like 'lol oops'
and then they buy the dip?
and we're just the dumb humans who thought this was finance?
bruh.
just say it's a scam.
i'm out.
send help.
or just take my money. i'm tired.
the most dangerous thing in crypto isn't volatility.
it's the belief that you can outsmart the system.
the engine doesn't care about your edge.
it doesn't care about your strategy.
it doesn't care if you're 'smart'.
it only cares about the math.
and if your math is wrong?
you get erased.
no drama.
no mercy.
just code.
and that's the beauty of it.
it doesn't lie.
so don't lie to yourself.
use less leverage.
set a buffer.
know your numbers.
and you'll be fine.
the engine isn't your enemy.
it's your teacher.
the fact that you trust a system run by anonymous devs in a discord server is why america is collapsing.
you think this is innovation?
it's a digital ponzi scheme with a whitepaper.
they let you trade with leverage because they know you'll lose.
and then they use your losses to fund their next project.
ADL? that's just legalized theft.
DeFi? just a tax on gas fees.
you're not building the future.
you're funding the elite.
and you're too dumb to see it.
get a real job.
and stop gambling with your life savings.
liquidation price = your warning light.
not your death sentence.
if you see it coming - act.
not after.
before.
simple.
the real tragedy isn't the liquidation - it's that most traders never even understood the difference between a close factor and a maintenance margin
they treat this like a stock app
but it's a nuclear reactor with a UI made by a 19-year-old intern
and they wonder why they're broke
it's not the market
it's their ignorance
and now they're blaming the engine
when they never bothered to read the manual
pathetic
just read the reply above.
you don't need to be a genius.
you just need to not be lazy.
the engine doesn't care how smart you think you are.
it only cares if you did your homework.
and if you didn't?
you got what you deserved.
no tears.
no pity.
just code.