Mark price, index price and the liquidation table
Lesson 14 · about 10 min
When you open a perp position, the exchange lends you the difference between your margin and the notional. It protects itself by closing your position automatically if your margin runs too low. That closure is a liquidation, and everything about it, when it happens, at what price, and how much you lose, follows from a small amount of arithmetic that you should be able to do in your head before you ever place the trade.
Three prices
A perp has three prices, and beginners confuse them constantly:
- Last price. The most recent trade on this exchange's perp order book. This is what the chart shows.
- Index price. A volume-weighted average of the spot price across several major exchanges. This is "what the coin is actually worth".
- Mark price. The index price plus a smoothed estimate of the perp's basis (its usual premium or discount). Unrealised profit and loss, margin ratios and liquidations are all computed on the mark price, not the last price.
Why not the last price? Because a single large order on a thin perp book could push the last price through thousands of stops and liquidation levels in one second, and someone would be tempted to do exactly that. The mark price anchors liquidation to the broad spot market, which is far harder to move. It also means you can be liquidated while the last price on your screen never touched your level, if the index moved and the perp lagged.
The liquidation price
Ignoring fees, for an isolated-margin position:
- Long: liquidation price = entry × (1 − 1/leverage + maintenance margin rate)
- Short: liquidation price = entry × (1 + 1/leverage − maintenance margin rate)
The maintenance margin rate (MMR) is the minimum margin the exchange requires to keep the position open, typically 0.4% to 1% of notional for BTC and higher for alts. Liquidation happens when your margin falls to that level, which is slightly before your margin reaches zero. The exchange takes the remaining maintenance margin and a liquidation fee, so a liquidation loses everything you posted.
Example: long BTC at $60,000 with 10x leverage and a 0.5% MMR.
liquidation = 60,000 × (1 − 0.10 + 0.005) = 60,000 × 0.905 = $54,300
A 9.5% drop, not 10%, liquidates you, and the 0.5% difference is the exchange's cushion.
Key idea: Distance to liquidation is roughly 1 ÷ leverage, minus the maintenance margin rate. Liquidation is triggered by the mark price, not the price on your chart, and it costs your entire margin plus a fee.
The table
Distance from entry to liquidation with a 0.5% MMR, assuming isolated margin and no added margin:
| Leverage | 1 ÷ leverage | Distance to liquidation | Long from $60,000 liquidates at |
|---|---|---|---|
| 2x | 50.0% | 49.5% | $30,300 |
| 3x | 33.3% | 32.8% | $40,300 |
| 5x | 20.0% | 19.5% | $48,300 |
| 10x | 10.0% | 9.5% | $54,300 |
| 20x | 5.0% | 4.5% | $57,300 |
| 25x | 4.0% | 3.5% | $57,900 |
| 50x | 2.0% | 1.5% | $59,100 |
| 100x | 1.0% | 0.5% | $59,700 |
Read the right-hand columns against what BTC does on an ordinary day. A daily range of 3% to 4% is normal; 8% to 10% days happen several times a year; weekend spikes of 5% in an hour are unremarkable. Every row from 20x downwards sits inside normal daily noise. Alts, with double or triple BTC's volatility and higher MMRs, are worse in every row.
Why your stop must be inside the liquidation price
A stop at 6% below entry on a 20x position is decorative: the exchange liquidates you at 4.5% before the stop is reached. The stop has to sit well inside the liquidation distance, with room for the mark price to overshoot the last price during a spike. A working rule: never use leverage where 1 ÷ leverage is less than twice your stop distance. With a 3% stop, that caps you at about 16x, and in practice far lower once funding and slippage are included.
Remember that leverage is an output, not an input. You size from the stop (Module 3 and the risk management course), which gives you a notional. Leverage is just notional ÷ margin posted. Choosing "20x" first and then finding a stop is backwards.
Cascades
When the mark price hits a cluster of liquidation levels, the exchange market-sells those positions into the book. That pushes the mark price down, which hits the next cluster. Because many traders enter at similar prices with similar leverage, liquidation levels bunch up, and a 3% move can turn into a 12% move in minutes. This is the mechanism behind most of crypto's famous wicks, and it is the reason funding rate extremes (previous lesson) matter: they tell you which side's cluster will be hit.
Most exchanges publish liquidation data, and several sites aggregate it into "liquidation heatmaps" showing where clusters sit. They are useful for understanding where a squeeze is likely, and dangerous when used to justify trading into one.
Try it: Compute the liquidation price for a short entered at $3,200 on ETH at 5x, 10x and 25x with a 0.75% MMR. Then, using an ETH chart, count how many days in the last three months had a range large enough to hit each one from an entry at the day's open.
Recap
- Last price is the chart; index price is averaged spot; mark price (index plus smoothed basis) drives PnL and liquidations.
- Long liquidation = entry × (1 − 1/L + MMR); short = entry × (1 + 1/L − MMR). Distance is roughly 1/L minus the MMR.
- From 20x upwards, liquidation sits inside ordinary daily noise; liquidation loses the full margin plus a fee.
- Place stops well inside the liquidation distance; leverage is an output of sizing from the stop, never an input.
- Liquidation clusters cause cascades; funding extremes tell you which side will be hit.
See it drawn
Original diagrams for the ideas on this page. Illustrative, not real market data.