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A liquidation is the forced closure of a position whose losses have used up too much of its margin. It protects the market from positions that can no longer cover their losses.

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When liquidation happens

A position is liquidated when its margin balance falls below the maintenance margin. In practice, this means the mark price reaches your liquidation price. Margin balance = collateral + realized PnL + unrealized PnL Liquidation uses the mark price, not the last traded price. The mark price combines prices from several major spot exchanges with funding data, so a single sharp trade or a thin moment in the order book cannot liquidate you on its own.

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What happens during a liquidation

1

Open orders are cancelled

All open orders in the affected margin are cancelled to free up margin.
2

The position is reduced

The engine closes the position, or part of it, against the market. If the remaining margin is enough after this step, the liquidation stops.
3

The remainder is closed at the bankruptcy price

If margin is still insufficient, the rest of the position is taken over by the insurance fund at the bankruptcy price, the price at which your margin reaches zero.
A liquidation fee applies to liquidated positions. Part of it goes to the insurance fund, which covers losses from positions that close below their bankruptcy price.

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Cross versus isolated

  • Isolated position. Only the margin assigned to that position is lost.
  • Cross positions. All cross positions share one margin balance. A large loss in one position lowers the liquidation buffer of all of them.

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How to avoid liquidation

Use lower leverage

The further your liquidation price is from the entry, the more volatility you can survive.

Set a stop loss

Close the position on your terms, well before the liquidation price.

Add margin

Adding margin to an isolated position moves its liquidation price further away.

Reduce size

Closing part of a position lowers the maintenance margin required.
Watch the margin ratio in your account panel. Above 80%, the position is close to liquidation.

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Degen mode

Degen mode positions follow the same principle on their own engine. At leverage up to 1000x, liquidation can occur after a price move of a fraction of a percent, often within seconds.