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When a trader’s equity drops below maintenance margin, the system closes the position before it becomes insolvent. Normal liquidations route through the order book as reduce-only immediate-or-cancel orders. If the breach is severe, the position is absorbed directly by the insurance fund instead.

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Trigger

An account or isolated position is at risk when: 
MarginRatio = Equity / MaintenanceMargin
Liquidation starts when MarginRatio < 1.0, which means Equity < MM. Cross and isolated positions are checked independently:
  • Cross uses the account’s cross equity and combined cross maintenance margin.
  • Isolated evaluates each isolated position using its own equity and maintenance margin.
Margin health is re-evaluated continuously, so the system reacts as soon as a new Mark Price, fill, or deposit moves the account across the threshold.

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While Liquidating

When liquidation starts, the affected scope is flagged:
  • Cross liquidation blocks new orders on every market for the account.
  • Isolated liquidation blocks new orders only on the affected market.
Order submissions from the account are rejected while the flag is set. Existing resting orders remain on the book.

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Execution

The system closes flagged positions with reduce-only immediate-or-cancel orders. These orders execute immediately against available liquidity and cancel any unfilled quantity. Margin health is re-evaluated between orders, so partial fills that restore the account naturally stop the process.

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Target Selection

Cross liquidation closes one position at a time. After each fill settles, the system re-evaluates and picks again from the remaining cross positions, so a trader with multiple cross positions is unwound across several cycles rather than all at once. Isolated liquidation closes the flagged position in full.

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Order Shape

Liquidation orders are IOC, reduce-only, and market-priced. They sweep whatever liquidity is resting on the book at the moment they land. There is no protective spread off Mark.

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Recovery

When a liquidating account’s equity recovers to or above its recovery initial margin, the flag clears and normal order submission resumes. If a position is fully closed during liquidation, the flag is also cleared because the market no longer has a position to liquidate.

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Insurance-Fund Backstop

If equity falls far enough below maintenance margin that order-book liquidation is unlikely to recover value, the system skips the order book and absorbs the position into the insurance fund.
  • Cross backstop absorbs all of the trader’s cross positions plus their quote-asset balance into the insurance-fund account.
  • Isolated backstop absorbs the specific isolated position and its allocated isolated margin.
Once absorbed, the insurance fund holds the position and manages it like any other account.

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Fees

The liquidating account pays an extra liquidation fee on every fill while flagged, on top of its normal maker or taker rate. 
FillFee = Notional * (MakerOrTakerRate + LiquidationFeeRate)
Liquidation fee rates vary by market. If you’re integrating Perps, read current values from Market Data.