Beginners often wonder: "Why was my position liquidated when the price hadn't even reached my calculated liquidation price?" The answer lies in two key variables: Maintenance Margin Ratio and Mark Price. This article explains the Binance futures liquidation mechanism clearly from the source. If you want to check your liquidation price and margin ratio in real-time, please log in to the Binance Official Website, or open the futures page on the Binance Official App. Apple users can refer to the iOS Installation Guide to install it.
What is Liquidation
Liquidation refers to when the margin ratio of a futures position falls below the maintenance margin ratio, prompting Binance to forcefully close the position to prevent further losses from expanding, which could ultimately lead to bankruptcy (losses exceeding the margin).
In short: Margin Ratio ≤ Maintenance Margin Ratio → Forced Liquidation.
Core Concept 1: Margin Ratio
Margin Ratio = (Account Equity + Unrealized PnL) ÷ Notional Position Value × 100%
Example:
- You use 1,000 USDT as margin.
- You open a 10x leverage long position on BTC.
- Notional position value = 10,000 USDT.
- Assuming the price hasn't moved, the account equity is 1,000 USDT.
- Margin Ratio = 1,000 / 10,000 = 10%.
If the price goes up, the margin ratio increases; if the price goes down, the margin ratio decreases. When the margin ratio drops to the maintenance margin ratio, liquidation is triggered.
Core Concept 2: Maintenance Margin Ratio
The Maintenance Margin Ratio (MMR) is the minimum margin requirement mandated by Binance to keep a position open. It is not a fixed value, but increases progressively in tiers based on the notional value of the position.
Binance BTCUSDT Perpetual Contract MMR Tiers (Simplified Version):
- Notional Value ≤ 50,000 USDT: MMR 0.4%
- 50,000 - 250,000 USDT: MMR 0.5%
- 250,000 - 1,000,000 USDT: MMR 1%
- 1,000,000 - 5,000,000 USDT: MMR 2.5%
- 5,000,000 - 20,000,000 USDT: MMR 5%
- Over 20,000,000 USDT: MMR 10%
The larger the position, the higher the maintenance margin ratio. This is designed to prevent large accounts from crashing the market during periods of low liquidity.
Core Concept 3: Mark Price
Liquidation is triggered by the Mark Price, not the latest traded price.
Mark Price = Spot Index Price + Funding Rate Adjustment
Why is it designed this way? To prevent malicious price wicks from causing liquidations. If the latest traded price were used to trigger liquidations, large players could use a small amount of capital to instantly crash the price through the liquidation threshold during low-liquidity periods. By using the mark price, abnormal fluctuations in a single futures contract cannot directly trigger a liquidation; the spot market must also move accordingly.
Many beginners' confusion about liquidation stems from this—"The candlestick clearly didn't hit my liquidation price." However, the candlestick shows the futures traded price, while liquidation references the mark price. You must switch the main chart to "Mark Price" on the futures page to see the true liquidation level.
Liquidation Price Calculation Formula
Long Liquidation Price (Isolated Margin):
Liquidation Price = Entry Price × (1 - Initial Margin Ratio + Maintenance Margin Ratio) / (1 - Maintenance Margin Ratio)
Simplified version (ignoring MMR):
Liquidation Price ≈ Entry Price × (1 - 1 / Leverage Multiplier)
Short Liquidation Price:
Liquidation Price ≈ Entry Price × (1 + 1 / Leverage Multiplier)
Example Calculation
Opening a 10x long position on BTC with an entry price of 60,000:
- Liquidation Price ≈ 60,000 × (1 - 1/10) = 54,000 USDT
A 10% price drop results in liquidation. After factoring in MMR and trading fees, the actual liquidation price will be slightly higher than 54,000 (around 54,200).
The 4 Steps of the Liquidation Process
Step 1: Margin Call Warning
When the margin ratio drops to the warning line (usually 1.5 to 2 times the maintenance margin ratio), Binance will send a notification. Emails, App push notifications, and SMS will be triggered.
At this point, you have choices:
- Add margin (transfer more USDT from your spot wallet to your futures account).
- Proactively reduce your position (close part of the position to lower the notional value).
- Do nothing (wait for liquidation).
Step 2: Position Takeover
When the margin ratio drops to the maintenance margin ratio, Binance's liquidation engine takes over your position. At this moment, you lose control of the position; you cannot modify stop-losses, take-profits, or manually close the position.
Step 3: Market Price Closure
The liquidation engine will execute a close at the opposing orders near the mark price. It's not executed at the price you want. For a highly liquid pair like BTCUSDT, the closing price is often close to the liquidation price. However, for small altcoin contracts, it might deviate significantly.
Step 4: Settlement
After the position is closed:
- If there is remaining margin: It is returned to your futures account.
- If the margin is insufficient to cover the loss (bankruptcy): The deficit is covered by the Insurance Fund.
What is the Insurance Fund
The Insurance Fund is Binance's "liquidation backstop pool". During a normal liquidation, the difference between the liquidation engine's execution price and the liquidation price (the profit made by the engine) is injected into the Insurance Fund.
The purposes of the Insurance Fund:
- Covering bankruptcy deficits—making the platform whole when a user's account goes into negative equity.
- Avoiding Auto-Deleveraging—reducing the frequency of ADL triggers.
The size of Binance's BTCUSDT Insurance Fund consistently remains at hundreds of millions of dollars, sufficient to withstand the vast majority of market shocks.
Bankruptcy and Auto-Deleveraging (ADL)
Bankruptcy occurs when the slippage on the liquidation price is so large that after the position is closed, your equity not only goes to zero but you actually owe the platform money.
Binance has "negative balance protection" for retail users—you will only ever lose your margin at most; you won't actually owe a debt. The negative balance is absorbed by the Insurance Fund.
When the Insurance Fund is also insufficient to cover the losses, Auto-Deleveraging (ADL) is triggered—forcefully closing opposing profitable positions to cover the deficit. The ADL priority is ranked by profitability and leverage multiplier; users with the highest profits and highest leverage are deleveraged first.
ADL is extremely rare and is only triggered during extreme market events (such as the March 12, 2020 crash or the May 19, 2021 crash).
Can the Funding Rate Also Cause Liquidation?
Yes. The funding rate settles every 8 hours, paid between long and short positions.
If you hold a position in a direction opposite to the funding rate (e.g., you are long and the rate is positive), a funding fee will be deducted every 8 hours, and this money is deducted directly from your margin. Holding a position for a long time will slowly deplete your margin, indirectly bringing the liquidation distance closer.
Example: With a funding rate of 0.01% and a notional position of 100,000 USDT, 10 USDT is deducted every 8 hours. That's 30 USDT a day, or 900 USDT a month. For long-term holders, this cost cannot be ignored.
How to Avoid Liquidation
- Use low leverage: Stick primarily to 3-5x.
- Set a stop-loss: Proactively cut losses before reaching the liquidation price.
- Add margin: Keep extra USDT in your account as a buffer.
- Build positions in batches: Don't go ALL IN at once.
- Avoid highly volatile periods: CPI releases, FOMC meetings, weekends, etc.
- Watch the Mark Price, not just the candlestick.
- Check the funding rate: Consider reducing your position when rates are extreme.
Frequently Asked Questions
Q: Is a 90% margin ratio safe?
A: No, you are looking at this number backward. The lower the margin ratio, the safer you are. The correct way to understand it is via the "Health Rate" shown in the Binance App: (Account Equity - Maintenance Margin) / Account Equity. A 100% Health Rate is the safest, and 0% means liquidation.
Q: Can I immediately open a new position after being liquidated?
A: Yes. As long as you have an available balance in your account, you can continue to open new positions. However, it is strongly recommended to cool down first; immediately opening a revenge trade after a liquidation often leads to even greater losses.
Q: Does the "Liquidation Price" shown on the futures page change?
A: Yes. In Cross Margin mode, the liquidation price changes in real-time with your account equity—the more you profit, the further away it gets; the more you lose, the closer it gets. In Isolated Margin mode, the liquidation price is only affected by the position itself and is not dragged down by other positions.
Q: If my account goes bankrupt, will Binance really not ask me for money?
A: Binance has negative balance protection, so retail accounts trading perpetual contracts will not owe a debt. However, be aware that other platforms may not have this mechanism, and it may not apply to certain derivative products or institutional accounts.