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RISK · LIQUIDATION BUFFER

Liquidation Buffer in Crypto: When the Common Rule Produces a Misleading Result

A common rule says keep liquidation well beyond the stop. The buffer you calculate at entry shrinks as fees and funding come out of margin.

By ChartsPod Editorial Team · Reviewed by ChartsPod Research
Published · Updated · 5 min read

Short answer

A liquidation buffer is the distance between stop and liquidation. It's usually calculated at entry, but on isolated margin, funding payments and fees reduce margin over time, moving liquidation closer; larger positions fall into higher maintenance tiers; and liquidation uses mark price, which can differ from the last price your stop watches. Recalculate the buffer while holding, and include maintenance tier and accrued funding.

Worked example

StepValue
Entry bufferStop 2%, liquidation ≈ 9.6% (10× isolated, illustrative)
Funding paid over a weekReduces margin
Maintenance tierHigher for larger notional
Trigger priceLiquidation uses mark price
ActionRecalculate while holding
Buffer erosion (illustrative)Buffer erosion (illustrative): DAY 0: Liquidation 9.6% below; DAY 3: Funding paid: 9.2%; DAY 7: 8.7%; SIZE ADDED: Higher tier: 7.9%.DAY 0Liquidation 9.6% belowDAY 3Funding paid: 9.2%DAY 78.7%SIZE ADDEDHigher tier: 7.9%
The buffer isn't fixed. Original ChartsPod editorial graphic.

Checks

Buffer upkeepBuffer upkeep: Recalculate daily; Include funding paid; Check maintenance tier; Mark vs last price; Re-check after adding size.BUFFER UPKEEPRecalculate dailyInclude funding paidCheck maintenance tierMark vs last priceRe-check after adding size
Entry numbers expire. Original ChartsPod editorial graphic.

Conclusion

Related: Liquidation Price vs Stop Price in Crypto: How to Read the Data With Price Context, Maintenance-Margin Tiers in Crypto: How to Read the Data With Price Context.

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A liquidation buffer is the distance between stop and liquidation.

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Questions readers ask

Why does my liquidation price move?

Fees and funding reduce isolated margin; tiers change with size.

Which price triggers liquidation?

Mark price on most venues.

How often should I recalculate?

While holding, especially after adding size.

Sources and methodology

Arithmetic uses standard sizing formulas. Fee rates (0.05% taker, 0.02% maker), slippage and funding values are illustrative; check your venue's schedule. Liquidation figures are simplified approximations; exchanges calculate them with their own maintenance-margin rules (see Bybit's documentation).

  1. Bybit: Liquidation process — mark price and margin modes.
  2. ChartsPod: product overview, pricing and FAQ — free terminal, venues, modules, no order placement; checked 17 Oct 2026.

This article explains research tools and workflows. It is not financial advice, does not recommend buying or selling any asset and does not predict prices. Crypto derivatives carry a risk of rapid and total loss of margin.

CHARTSPOD EDITORIAL EDITION · RESEARCH AND EDUCATION ONLY · NOT FINANCIAL ADVICE.