Crypto Liquidation Price vs Bankruptcy Price: Why They Differ

Two prices, two questions

A leveraged futures position has an entry price, a mark price, a liquidation price and, on some venues, a bankruptcy price. The first two are familiar. The last two are often treated as synonyms, and they are not.

Liquidation price is the price at which the venue’s risk engine force-closes the position. For a long, it is the price at which equity has fallen to the maintenance-margin requirement. It is a trigger, executed against the mark price.

Bankruptcy price is the price at which the position’s equity is exactly zero — the point at which losses have consumed the entire margin posted against the position. It is a limit on the loss in isolated margin, not a trigger.

The distinction is easiest to see in the order of events. The mark price reaches the liquidation price first, the venue closes the position there, and the bankruptcy price is never reached. The bankruptcy price exists to define what happens if the close is worse than expected, and to set the boundary between the trader’s loss and the insurance fund’s.

Why the gap is the maintenance margin

For an isolated long with no added margin, the two prices are related by the maintenance-margin rate:

Liquidation price = Bankruptcy price ÷ (1 − MMR)

Rearranged, the distance between them is:

Liquidation price − Bankruptcy price = Bankruptcy price × MMR ÷ (1 − MMR)

The gap is approximately the maintenance margin at the liquidation price. It is not a buffer the venue adds for safety; it is the requirement that triggers the close in the first place.

Consider a long of 0.5 BTC entered at 80,000 USDT with 10× leverage. The position notional is 40,000 USDT and the margin is 4,000 USDT. At the first maintenance tier, MMR is 0.40%.

• Bankruptcy price = 80,000 − (4,000 ÷ 0.5) = 72,000.00
• Liquidation price = 72,000 ÷ (1 − 0.004) = 72,289.16
• Gap = 289.16 per BTC, or 144.58 USDT on the position

Check the liquidation price directly: at 72,289.16, the position’s unrealised loss is (80,000 − 72,289.16) × 0.5 = 3,855.42 USDT. Equity is 4,000 − 3,855.42 = 144.58 USDT. The maintenance requirement is 72,289.16 × 0.5 × 0.004 = 144.58 USDT. Equity equals the requirement, so the position is liquidatable.

At 72,000, the loss is 4,000 USDT and equity is zero. That is bankruptcy.

The table is the whole argument in three rows. The venue acts at the first row where equity meets the requirement, not the row where equity reaches zero.

The liquidation fee sits between them

The gap is not returned to the trader. When a position is liquidated, the venue charges a liquidation fee on the position’s notional value, and that fee is deducted from whatever margin remains.

Binance’s public contract metadata for BTCUSDT lists a liquidation fee of 0.0125 — 1.25% of notional — and the futures trading-parameters page carries the same rate per symbol. At the liquidation price in the example, the notional is 72,289.16 × 0.5 = 36,144.58 USDT, so 1.25% is 451.81 USDT.

Only 144.58 USDT of margin remains at that point. The fee is deducted from the remaining collateral, so it is bounded by it: the trader does not end up owing the difference, but the margin is fully consumed. The insurance fund’s income in such a liquidation comes from executing the close better than the bankruptcy price, not from the fee.

That ordering explains a sentence that otherwise sounds contradictory: liquidation price is not the price at which you lose your margin — you have already lost most of it by then — and bankruptcy price is not the price at which the venue closes you. The margin is lost across the whole distance from entry to liquidation; the bankruptcy price only marks where the last of it would have gone.

What happens at each price

At the liquidation price. The risk engine places an order to close the position. On Binance the trigger is the mark price, not the last traded price, which is why a wick on the chart is not always enough to liquidate a position and a mark-price move with no corresponding last trade can be.

At the bankruptcy price. Nothing is triggered here. The price is a boundary. If the forced close executes at or better than it, the position is not bankrupt and the residual margin is transferred according to the venue’s rules. If it executes worse, the account is treated as bankrupt and the insurance fund absorbs the deficit.

Bybit’s help pages state the settlement rule directly: positions are always settled at the bankruptcy price regardless of the market price. That is a meaningful difference from a venue that closes at market. Under the Bybit rule, an isolated trader’s loss is capped at the margin posted; the fund takes the execution risk. Under a market-close rule, the position’s realised loss is whatever the book gives, and the fund covers only the part beyond bankruptcy.

After bankruptcy. If the insurance fund cannot absorb the loss, venues move to auto-deleveraging: profitable positions on the opposite side are closed at the bankrupt trader’s bankruptcy price. That is the last step, and it is why the bankruptcy price matters even to traders who were never liquidated — it is the price at which their own position can be reduced without their consent.

The formulas on each venue

Bybit publishes the isolated-margin formulas explicitly. For USDT- and USDC-margined contracts:

• Long bankruptcy price = Entry × (1 − IMR)
• Short bankruptcy price = Entry × (1 + IMR)

where IMR is 1 ÷ leverage. That reproduces the example: 80,000 × (1 − 0.1) = 72,000.

For inverse contracts the formulas differ because the contract is quoted in USD and settled in coin:

• Long = Entry × Leverage ÷ (Leverage + 1)
• Short = Entry × Leverage ÷ (Leverage − 1)

The difference is not cosmetic. The same leverage on an inverse contract produces a bankruptcy price at a different distance from entry, and a trader moving a strategy between USDT-margined and coin-margined books has to recalculate rather than reuse the number.

Binance’s liquidation price is the output of an account-level formula that includes wallet balance, unrealised P&L, the maintenance amount for the position’s tier and the maintenance-margin rate. The simplified relationship above holds when the position is the only one in an isolated account and no margin has been added or removed. Once there are multiple positions or added margin, the displayed liquidation price is the only number that reflects the actual account.

Cross margin removes the fixed bankruptcy price

In isolated margin, the position’s margin is a wall. The bankruptcy price is where the wall ends, and the maximum loss is the margin posted.

In cross margin, the wall is the whole account. A losing position draws on every asset in the account, so the point of zero equity depends on the other positions, the collateral mix and the haircuts applied to non-stablecoin assets. Venues display an estimated account-level liquidation price, but it is an estimate that moves whenever an unrelated position changes, and it is not a position-level bankruptcy price.

That is the practical difference between the two modes, and it is larger than the leverage setting suggests. Isolated margin bounds the loss at the position. Cross margin bounds it at the account — which is a larger number, and one that can include assets the trader did not think of as belonging to the trade.

Reading the numbers correctly

1. Use the displayed liquidation price, not a hand calculation. Fees, added margin and tier changes all move it.
2. Treat the distance from entry to liquidation as the risk, not the leverage. A 10× position is not “10% away” in a market with gaps and fees; the maintenance requirement and the mark-price rule decide.
3. Know which price the venue settles at. A venue that settles at bankruptcy caps the isolated loss at the margin; a venue that closes at market does not.
4. Check the liquidation fee. On Binance the BTCUSDT rate is 1.25% of notional, which in the first tier is larger than the remaining margin and therefore consumes it.
5. In cross margin, watch the account, not the position. There is no bankruptcy price to anchor the loss.

The mode comparison — what changes between cross and isolated, and how a second position moves the liquidation price — is set out in Binance cross vs isolated margin. The sizing decision that keeps the liquidation price outside a plausible range is covered in position sizing from a risk budget, and the position-size calculator applies it.

Risk note. The contract parameters in this article were read from Binance’s public API on 2026-10-19, and the liquidation and insurance-fund mechanics from Binance and Bybit help pages. The worked example assumes the first maintenance tier’s 0.40% rate and a single isolated position with no added margin; actual liquidation prices are produced by the venue’s risk engine and can differ. Leveraged futures can lose the entire margin posted, and auto-deleveraging can close profitable positions. Nothing here is investment advice.

The number to watch is the trigger

Liquidation price and bankruptcy price differ by the maintenance margin, and the liquidation fee is charged in the space between them. The first is where the venue acts, the second is where the loss would stop if the venue let it run, and in isolated margin the venue does not let it run.

That makes the liquidation price the operative number for survival and the bankruptcy price the boundary on the loss. A trader who knows only the first has the trigger without the floor; one who knows only the second has a price the market will never reach. The pair, read together, is the actual risk of the position.