When your position moves against you, your current margin may fall below the maintenance margin level required to keep the position open. At this point, your position is liquidated to prevent a negative balance and the potential for catastrophic losses.
Trading with leverage amplifies both profits and losses which can lead to liquidation if the market rapidly turns against your position.
Once you open your position, it can be assigned to one of the five liquidation waterfall stages.
To prevent the position from being auto-liquidated, as it loses value as a result of adverse market moves, you must maintain a certain level of collateral in their account.
Initial Margin > Current Margin > Maintenance Margin
Automatic Partial Liquidation
When your position loses value and the collateral in your account falls below the Maintenance Margin, but is still above the Close out Margin, the position will automatically partially liquidate the position to prevent further losses.
Liquidity Support Program
Once your Current Margin is below the Close out Margin, your liquidated positions will be assigned to LSP participants who will take on the liquidated positions.
Positions with margin levels below Close out Margin are liquidated by the Insurance Fund when LSPs have no capacity to take liquidated positions.
Auto-Deleveraging and Clawbacks
Residual risk is addressed by auto-deleveraging and clawbacks in this final stage of the liquidation waterfall. Auto-deleveraging and clawbacks match and auto-deleverage liquidated positions against opposing traders.
Liquidation buffer calculation
The liquidation buffer percentage is calculated by looking at your current margin available in your international exchange account. It can be any value between 0% and 100%, and can go well above 100% if your international exchange account is over-collateralized with USDC.
0% is the maintenance margin
100% is your portfolio initial margin
Close to liquidation
You’ll receive a banner notification in your Advanced Trading UI and an email cautioning you that you’re close to liquidation.
Percentage below 80%: Warning state
Percentage below 20%: Danger state
Percentage at 0%: Liquidation begins
Improve your liquidation buffer by closing open orders, closing positions or adding margin.
Closing a position
In the Positions Blotter of any perpetual futures market page, select a position to place a market order and close the position.