Key takeaways
- The liquidation price is where the venue closes a leveraged position because the margin left has fallen to the maintenance requirement. It is set by your entry price, your leverage and the venue's rules.
- The more you borrow against your margin, the nearer it sits. In the worked example below, 2x leverage puts it almost 50% from entry, while 20x puts it under 5% away.
- Liquidation is not a stop-loss. You do not choose it, and in a fast market the position can close beyond the level, at the next price available.
- Avoiding it comes down to lower leverage, spare margin, an exit you control and a position you can monitor.
- Perpetual futures are not available in the UAE. Backpack's Dubai licence covers spot trading only, so this guide explains the mechanics.
For information only. Not investment advice. This guide explains how a mechanism works and does not tell you whether or how to trade. Read the risk disclosure first.
What a liquidation price is
When you trade with leverage, you post initial margin, a fraction of the position's value, and the venue lends the rest. To protect itself, the venue also sets a maintenance margin, the minimum collateral that must stay behind the position. As the price moves against you, losses are taken from your margin. The liquidation price is the price at which what is left reaches that minimum. At that point the venue closes the position for you, and you lose the margin that supported it, less anything left after closing. The perpetual futures guide sets this in context, and the guide to leverage explains why it cuts both ways.
Longs, shorts and the mark price
A long position profits when the price rises, so it is liquidated when the price falls to the liquidation level. A short position profits when the price falls, so its liquidation level lies above the entry price. In both cases the check normally runs on the mark price, a reference price usually built from several markets, rather than on the last trade on one order book. The effect is that a single odd trade on the venue should not liquidate you by itself, although a genuine market move will.
How the level is worked out
Each venue publishes its own formula, and the sources read for this site do not state Backpack's maintenance margin rates. The logic is the same everywhere, though. For a long position, ignoring fees and funding, liquidation comes when:
margin posted + profit or loss = maintenance margin rate × current position value
Because profit or loss falls as the price falls, you can solve this for the price. The less margin you posted for each unit of position, the sooner the equation is met.
A worked example at four leverage levels
The figures below are invented for illustration and are not a forecast or a Backpack quote. Take a long position of 10,000 USD, opened at 100 USD per unit, so 100 units. Assume a maintenance margin of 0.5% of position value, a round number chosen for the arithmetic. Fees and funding are ignored. Leverage is the position size divided by margin, so 10,000 USD at 10x needs 1,000 USD of margin.
| Leverage | Margin (USD) | Liquidation price (USD) | Fall from entry |
|---|---|---|---|
| 2x | 5,000.00 | 50.25 | 49.75% |
| 5x | 2,000.00 | 80.40 | 19.60% |
| 10x | 1,000.00 | 90.45 | 9.55% |
| 20x | 500.00 | 95.48 | 4.52% |
Check the 10x row. At 90.45 USD the 100 units are worth about 9,045 USD, so the position has lost about 955 USD of the 1,000 USD margin. About 45 USD is left, which is 0.5% of 9,045 USD. The venue closes the position there. For a short opened at the same price with 10x leverage, the same arithmetic puts the level at about 109.45 USD, 9.45% above entry.
Doubling the leverage does not halve your room. It cuts the distance to liquidation to a fraction of what it was.
Isolated and cross margin change the picture
The example treats one position on its own. That is isolated margin: only the margin assigned to the position backs it, so only that margin is at risk. Under cross margin, the whole account balance backs every open position. The liquidation level is then further away, but one losing position can use up the margin supporting the others, and the whole account can be liquidated. Which modes a venue offers, and how it calculates them, is set in its product terms. Read those before you rely on a figure.
Why the position can close beyond the level
A liquidation price is a trigger, not a guaranteed fill. In a volatile market the price can jump through the level, and the position is closed at the next price available, which can leave less margin than the table suggests. The same risk applies to a stop order, as the guide to market, limit and stop orders shows. A forced close is also an order that must be filled against the book, so a thin book adds slippage and spread, and a liquidation fee may apply. The sources read give no Backpack liquidation fee or rules, so check Backpack's own terms for them.
How to avoid being liquidated
No method removes the risk, because a large enough move beyond your control can reach any level. These steps reduce the chance of a forced close.
- Use less leverage. The table shows that this has the largest effect on the distance to liquidation. Position size is a choice, and a smaller one gives the price more room.
- Keep spare margin. Margin you can add moves the level away. Spare margin only helps if you keep it available, and adding more to a losing trade also puts more money at risk.
- Set your own exit first. A stop order placed well inside the liquidation price lets you choose the loss, although it may not fill at your level in a gap.
- Allow for running costs. Fees and funding payments draw on your margin while a position is open, so the level creeps closer over time. The maker and taker fee guide and the fee schedule show what a position costs to open and close.
- Know the venue's rules. Read the margin, mark price and liquidation terms before you trade, and do not assume they match another exchange.
- Do not trade money you need. Margin can be lost in full, so only risk what you can afford to lose.
Why spot trading has no liquidation price
If you buy the asset in full, you own it and no loan is involved, so there is no margin to run out. The price can fall a long way and you still hold the asset, though it may be worth less. The guide to spot versus derivatives trading compares the two.
What this means in the UAE
In Dubai, Backpack is provided by Trek Labs Ltd FZE, licensed by the Virtual Assets Regulatory Authority (VARA) for Exchange Services, spot trading only, licence no. VL/23/07/001. Backpack's licence disclosure says the licence does not cover futures or margin trading, so perpetual futures, and therefore liquidation, are not available to clients in the UAE. Perpetual futures are provided in the EU by Trek Labs Europe Ltd, licensed by CySEC as a Cyprus Investment Firm, licence no. 273/15. No single licence covers every Backpack product in every country; the page on the companies behind Backpack and their licences sets out who provides what, and the FAQ answers common questions.
Frequently asked questions
What is a liquidation price in simple terms?
It is the market price at which the exchange closes your leveraged position because the margin left no longer covers the maintenance requirement. For a long position it sits below your entry price, and for a short position above it. Once it is reached you lose the margin that backed the position.
Is the liquidation price the same as a stop-loss?
No. A stop-loss is an order you choose and place, at a level you pick, to limit a loss. A liquidation is forced by the venue when margin runs out. If you place a stop between your entry and the liquidation price, it can close the position first, but only if it fills at or near that level.
Can I lose more than my margin?
It depends on the venue's rules, which you must read before trading. In a fast market the price can gap past the liquidation level, and the position is closed at the next price available. Whether any shortfall falls on you or on a venue fund is set in the product terms, so do not assume either.
Does adding margin move the liquidation price?
Yes. More margin on a position puts the liquidation price further from the current price, and less margin brings it closer. Withdrawing margin that appears to be spare does the opposite. Adding margin only delays the problem if the price keeps moving against you.
Does funding change my liquidation price?
It can. Funding payments move money in or out of your margin balance over time, so paying funding while a trade is open slowly lowers the margin left and brings the liquidation level nearer. See the funding rates guide for how payments are worked out.
Can I trade perpetual futures from the UAE?
No. Backpack's Dubai licence, held by Trek Labs Ltd FZE under VARA, covers spot trading only, so perpetual futures are not available in the UAE. This guide explains the mechanics and is not an offer to UAE clients.
Sources
- Backpack, VARA License Information, support site, as read for the perpetual futures guide on 12 October 2026. It was not re-read for this guide on 27 October 2026.
- Virtual Assets Regulatory Authority, public register of licences, the register cited in the footer for licence no. VL/23/07/001. The entry was not re-read for this guide.
- Cyprus Securities and Exchange Commission, register entry for Trek Labs Europe Ltd, the entry cited in the footer for licence no. 273/15. It was not re-read for this guide.
The margin formula and the table are the research team's own arithmetic on stated assumptions. Backpack's maintenance margin rates and liquidation rules were not found in the sources read, so no Backpack-specific figure is given.