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Liquidation

Updated over a month ago

Overview

A liquidation occurs when a trader’s positions move against them far enough that account equity falls below the required maintenance margin.

Liquidation

  1. Margin ratio is checked and liquidation is triggered.

    Formula: Margin Ratio = Maintenance Margin ÷ (Account Value - Haircuts)

  2. The liquidated position and seized collateral are transferred to the SLP vault.

  3. A Liquidation Clearance Fee is applied, calculated on notional size.

  4. The vault closes the position on the market.

Liquidation Clearance Fee

  • Applied to the notional value of the liquidated position.

  • Varies by market, e.g.:

    • BTC/ETH – 0.5%

    • SOL others – 1.0%

How liquidations are executed

Orderbook liquidation (primary path)

When equity drops below maintenance margin, the system first attempts to liquidate by sending market orders to the order book for the full position size.

  • Liquidation market orders may fully or partially fill

  • If enough of the position is closed such that maintenance margin requirements are satisfied again, any remaining collateral stays with the trader

Mark price used for liquidations

Liquidations use the mark price, which combines external reference pricing. This makes liquidations more robust than using a single instantaneous last trade / book price. During high volatility or on highly leveraged positions, mark price can differ meaningfully from the book price.

Partial liquidations

For liquidatable positions larger than 100,000 USDT:

  • Only 20% of the position is sent as a market liquidation order to the book

  • After any partial liquidation, there is a 30 second cooldown

    • During this cooldown, further liquidations for a user are sent for the entire position size

Computing liquidation price

Notes on liquidation price display

  • The liquidation price shown before entering a trade is an estimate and may be slightly inaccurate

  • After the position is open, the shown liquidation price has certainty of entry price, but can still change due to:

    • funding payments

    • unrealized PnL changes in other positions (cross margin)

Cross vs Isolated behavior

  • Cross margin: liquidation price is independent of the leverage setting (lower leverage simply uses more collateral)

  • Isolated margin: liquidation price does depend on leverage, because isolated margin allocated depends on initial margin selected

Liquidation price formula

  • Long: Entry + UPNL/Size - (Balance - MMR_total) / (Size × (1 - MMR))

  • Short: Entry - UPNL/Size + (Balance - MMR_total) / (Size × (1 + MMR))

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