--- title: "Leverage and liquidation explained · Trado Strategy Lab" description: "At 20×, a move of about 4.5% against you wipes out the margin. How liquidation price works on crypto perpetuals, isolated versus cross, and what to check." canonical: "https://algo.trado.trade/learn/leverage-and-liquidation-explained" lastModified: "2026-10-06" --- # Leverage and liquidation, explained Leverage lets a small amount of margin control a larger position. It also means a small move against you can end the trade for you. At 20× leverage, a move of about 4.5% against you loses the whole margin. Here is the maths, so the number is in front of you before you click run. ## How leverage and margin work On a perpetual future you put up margin, and the exchange lets you hold a position several times larger. A position worth 20 times your margin is 20× leveraged. Gains and losses are measured on the full position, so a 1% price move changes your margin by 20%. ## The liquidation maths On an isolated position, the exchange closes it when the loss eats the margin down to a maintenance level. As a rule of thumb, the adverse move that liquidates you is 100 divided by the leverage, minus the maintenance margin. Using a 0.5% maintenance margin, which is the Lab's default, that gives: - **2×:** about 49.5% against you. - **5×:** about 19.5%. - **10×:** about 9.5%. - **20×:** about 4.5%. A move of that size against you loses the whole margin. - **50×:** about 1.5%. - **100×:** about 0.5%. ## Why wicks matter more than closes Liquidation happens on the move itself, not at the end of the hour. A bar that dips 6% and closes down 1% shows a 1% loss on a chart and would have liquidated a 20× long on the way. This is why a leveraged backtest on coarse bars is unreliable, and why the Lab replays 1-minute bars. ## Isolated versus cross margin In **isolated** margin each position has its own margin, so the most it can lose is that margin. In **cross** margin all of your free balance backs the position, which delays liquidation but exposes the whole account to one bad trade. Neither is safer in general; they fail in different ways. The Lab models both. ## Stops, size and leverage are three different things Leverage is not position size, and it is not risk. Risk per trade is set by how far away your stop is and how large the position is. The trap is a stop-loss placed beyond the liquidation price: the exchange will close the position first, and the stop never fires. The Lab's liquidation guard refuses that setup unless you acknowledge it, and every report carries a leverage audit that shows which caps applied to which coins. ## A checklist before you add leverage - What adverse move would liquidate me at this leverage, and have this coin's normal swings gone that far? - Is my stop closer than my liquidation price? - How many times was my backtest liquidated, not just how much it earned? - Does the coin allow this leverage? Each has its own cap. - Could I afford to lose the whole margin on this trade? ## Common questions ### Is the liquidation price exact? The Lab computes it from its execution profile's maintenance margin and rules. A real exchange account can differ in details such as tiered margin, so treat it as a close estimate and not a guarantee. This is software, not advice. ### Is there a safe leverage? No leverage is safe in itself. Lower leverage leaves more room for a trade to be wrong. See [leverage and liquidation in the Lab](https://algo.trado.trade/liquidation-and-leverage.md). ## Next steps - [Join the waitlist](https://algo.trado.trade/waitlist) ## Related - [Leverage and liquidation guard](https://algo.trado.trade/liquidation-and-leverage.md): At 20×, a move of about 4.5% against you loses the whole margin. The Lab models liquidation, refuses stops past it, and audits the leverage each coin allowed. - [Why crypto backtests lie](https://algo.trado.trade/learn/why-backtests-lie.md): Look-ahead, missing costs, survivorship and ignored liquidation flatter backtests. A checklist to test any backtest, and how the Lab answers each point. - [Algo trading for beginners](https://algo.trado.trade/for-beginners.md): Start algo trading without code or a data pipeline: describe an idea, backtest it honestly, ask the Copilot why, and paper-trade before you risk a rupee.