How Does Liquidation Price Differ From Bankruptcy Price?

The liquidation price is where the system begins forcibly closing a position because maintenance margin is insufficient. The bankruptcy price lies deeper, where the position's allocated margin is fully exhausted. The gap gives the liquidation engine a buffer; execution relative to bankruptcy price adds to or draws from the insurance fund and affects ADL risk.

Why does liquidation start before bankruptcy?#

A venue needs time and price buffer to close a position before it creates a negative balance. When equity falls to the maintenance-margin requirement, the liquidation engine takes over the risk. Bankruptcy price represents the level where no allocated margin remains after losses and costs.

Where does the execution difference go?#

If the position closes better than bankruptcy price, the residual buffer may enter the insurance fund. If execution is worse, the fund covers the deficit. Bybit describes the next layer: when the fund is insufficient, the position can pass to auto-deleveraging.

Why does margin mode change the calculation?#

With isolated margin, only the amount assigned to one position is at risk, making thresholds easier to relate to entry price and leverage. Cross margin uses available account balance and considers other positions, PnL, funding, and open orders. The displayed liquidation price can therefore move without a change in entry price.

What are the limits and risks?#

Mark price, not the latest trade, commonly triggers liquidation. Fast markets and thin books worsen execution, while fees and funding shift thresholds. An insurance fund does not cover every scenario; ADL can reduce a profitable opposing position. Formulas and the loss waterfall must be checked for the specific contract.

What are the key takeaways?#

• Liquidation starts before margin reaches zero.
• Bankruptcy price corresponds to exhaustion of position margin.
• Better execution can add to the insurance fund.
• Worse execution creates a deficit for the fund or ADL.
• Cross margin makes thresholds depend on the entire account.