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What Is a Liquidation Fee? What Happens to Your Margin When You're Liquidated

When your position gets liquidated, you do not simply lose the position and walk away. The exchange charges a small fee for the forced closure — this is the liquidation fee. Understanding it helps you know exactly what happens to your margin and what (if anything) you get back.

What Triggers Liquidation​

Liquidation is triggered when your remaining margin falls to the maintenance margin level — not zero. The exchange does not wait for your margin to hit zero before closing your position because by then, the market might have moved past the point where the exchange can close without a loss.

So there is a gap between:

  • Liquidation price: Where the exchange forcibly closes your position
  • Bankruptcy price: Where your margin would hit exactly zero

The space between these two prices is the maintenance margin — a cushion that gives the exchange room to close your position safely.

What Happens to Your Margin at Liquidation​

Here is how the math works when you get liquidated:

  1. Your position is closed at or near the liquidation price
  2. Liquidation fee is deducted — typically 0.5% to 1% of position size
  3. Maintenance margin is used to cover the fee and the exchange's costs
  4. Any remaining balance (if any) is returned to your account

Example — Isolated margin position:

ParameterValue
Margin deposited$1,000
Position size (10x leverage)$10,000
Maintenance margin (1%)$100
Liquidation fee (0.5% of position)$50
Amount returned to account~$50 (maintenance margin minus fee)
Effective loss~$950

You lose almost all of the $1,000 — but not all of it. In practice, the returned amount at high leverage is very small.

The Insurance Fund​

When markets move fast — a flash crash, a large wick — the exchange sometimes cannot close your position exactly at the liquidation price. The position might fill slightly worse.

If it fills worse than the bankruptcy price (the price at which your margin would be zero), the exchange takes a loss on the liquidation. The insurance fund covers this gap. Most exchanges maintain an insurance fund from liquidation fees collected over time.

This is why liquidation fees exist: they partly fund the insurance pool that handles edge cases where liquidations cannot be filled at the optimal price.

If the insurance fund were ever depleted, some exchanges would implement auto-deleveraging (ADL) — where profitable traders on the opposite side have their positions partially closed to cover the deficit. This is rare but worth being aware of on less-liquid assets. See what is auto-deleveraging.

Cross Margin vs Isolated: Different Outcomes​

With isolated margin, the liquidation fee comes out of the margin assigned to that specific position. Your other positions and remaining account balance are untouched.

With cross margin, your entire account balance is used as margin. Liquidation happens later (your account absorbs more loss before the threshold is hit), but if it does happen, more of your capital is at risk. See cross margin vs isolated margin.

Avoiding the Fee Entirely​

The simplest way to avoid paying a liquidation fee is to not get liquidated:

  • Set a stop-loss well above your liquidation price — this exits the position at your chosen level, paying a normal trading fee instead of the liquidation penalty
  • Keep a margin buffer (do not max out your margin)
  • Use lower leverage on volatile assets so the liquidation price is further away
  • Monitor positions and add margin if they approach the danger zone

A stop-loss exit costs 0.015–0.045% in trading fees. A liquidation exit costs 0.5–1% plus you lose everything up to the maintenance margin level. The maths strongly favour setting stop-losses.