The buffer that decides who eats the loss
Your liquidation price fires first; the bankruptcy price is where your margin would be exactly gone. The distance between them β about entry Γ maintenance-margin-rate β is what the exchange uses to close the position and keep the loss off the insurance fund. Crank leverage up and that buffer shrinks toward nothing, so a fast wick can blow straight through it. Check how close liquidation itself sits on the liquidation calculator and whether your stop lands inside it with the stop-vs-liquidation gap tool. If enough positions blow through bankruptcy at once, the insurance fund can run dry β the venue then covers the deficit via auto-deleveraging or a socialized loss clawback on winning traders.
FAQ
What is the difference between liquidation price and bankruptcy price? Liquidation price is where the exchange force-closes your position; bankruptcy price is slightly further, where your remaining margin would be exactly zero. The exchange liquidates you before bankruptcy so there is a small buffer left to cover the close-out. That buffer equals your maintenance margin β roughly entry price times the maintenance margin rate.
What happens if price gaps past my bankruptcy price? If the market jumps straight past bankruptcy before the position can be closed, the loss exceeds your margin. The exchange insurance fund normally absorbs it and most venues offer negative-balance protection, but in extreme moves auto-deleveraging (ADL) can hit the winning side. High leverage shrinks the buffer between liquidation and bankruptcy, making gap risk worse.