Liquidation price is the price at which your exchange automatically closes your position because your remaining margin can no longer cover potential losses. For a long position it's below your entry price; for a short, it's above.

It is not the price where you lose 100% of your margin. Exchanges liquidate you earlier, at a buffer called the maintenance margin, so they can close your position before your losses exceed what you posted.

For a long: liquidation price ≈ entry price × (1 − 1/leverage + maintenance margin rate). For a short: entry price × (1 + 1/leverage − maintenance margin rate).

The maintenance margin rate isn't fixed — most exchanges use tiers based on position size, typically around 0.4% for smaller positions and rising to several percent for very large ones. Bigger positions also get a lower maximum leverage, because a large position that gets liquidated is harder for the exchange to unwind without moving the market.

At 5x leverage on a long, your position gets liquidated when price drops roughly 20% — plenty of room for normal volatility. At 50x, that buffer shrinks to about 2%, which Bitcoin can move in a single hour on a busy day.

This is the actual mechanism behind 'getting liquidated for no reason.' It's rarely bad luck — it's leverage compressing your survivable price range down to something smaller than the asset's normal noise.

Using the maximum leverage an exchange allows, rather than the leverage your own risk tolerance allows. Ignoring funding rates on perpetual futures, which slowly erode margin on a held position. Sizing the position first and checking the liquidation price after, instead of the other way around.