Liquidation
What happens when a position runs out of margin.
If losses bring your account's equity below the maintenance margin required by your open positions, the position is closed automatically. This is a liquidation.
The rule
Liquidation is a fixed, published rule, not a discretionary action. Positions are valued at the mark price and funding owed is settled first. The trigger is whole-account: liquidation begins when your equity falls below the aggregate maintenance margin of all your positions, not any one position in isolation.
How it unwinds
The exchange closes the position in three rungs, each tried in order, so a healthy market barely touches the insurance fund:
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On the book. A liquidation order rests on the book at the edge of a band around the mark and fills against other traders at a real price. This is the ordinary case, and it pays ordinary maker fees — no special liquidation fee.
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Into the insurance fund. If the book does not absorb it in time, the insurance fund takes the position over at the mark price and absorbs any shortfall. This rung — and only this one — charges the liquidation fee (1%–1.5% of notional), which goes to the protocol fee account. The insurance fund is not capitalised by that fee; it grows by taking over positions and winning the profitable side of them.
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Deleverage. Only if the insurance fund is exhausted, and only for an account already bankrupt (equity below zero), is the position closed at the mark against a profitable trader on the other side — who is left above maintenance afterward. This is the last resort.
Avoiding it
- Watch the Est. Liq column in Positions — the mark price at which your account would fall below maintenance.
- Add collateral, or reduce the position, to move that price away from the market.
- Remember that all positions share one balance: a loss in one market lowers the margin available to every other.
Why you can trust it
The liquidation rule is part of what every block proof verifies. A liquidation that did not follow the rule — wrong price, wrong threshold, an account that was not actually under maintenance — would make the block's proof fail, and the block would be rejected by the settlement contract. See Proofs and Provers.