Liquidations
Overview
Liquidation is the automatic closure of your position when your account equity falls below the required Maintenance Margin. This protects both you and the platform from negative balances.
Liquidations
Liquidation is the automatic closure of your position when your account equity falls below the required Maintenance Margin. This protects both you and the platform from negative balances.
What Happens When You're Liquidated?
Position Closed
Your entire position (cross) or specific position (isolated) is closed at bankruptcy price
Margin Lost
You lose your remaining margin (if any)
Cannot Reverse
Once liquidated, the position cannot be reopened automatically
⚠️ Critical: Always monitor your Margin Ratio and maintain a buffer above the maintenance margin requirement.
When Does Liquidation Occur?
Liquidation triggers by Mark Price differ based on your margin mode:
Cross Margin
Account Equity < Total Maintenance Margin
All cross positions may be liquidated together
Isolated Margin
Position Margin < Position Maintenance Margin
Only the specific isolated position is liquidated
Cross Margin Liquidation
Account Equity < Total Maintenance
Where:
Account Equity
Collateral + Unrealized PnL (all cross positions)
Total Maintenance Margin
Σ (Position Notional × MMR) for all cross positions
MMR
Maintenance Margin Rate (varies by tier, see Margin Tiers)
Isolated Margin Liquidation
Position Margin < Position Maintenance
Where:
Position Margin
Isolated Collateral + Unrealized PnL (this position only)
Position Maintenance Margin
Position Notional × MMR
Liquidation Process
Step 1: Trigger Detection
The liquidation engine continuously monitors all positions. When equity falls below maintenance margin:
Position is immediately marked for liquidation
No new orders can be placed for that position
Margin mode locked (cannot transfer collateral)
Step 2: Cancel Open Orders
All open orders on your account are immediately canceled.
Step 3: Order Submission
If the account value is still below the maintenance margin, a single large Immediate-or-Cancel (IOC) order is submitted to reduce your position size. The system attempts to fill as much as possible and cancel the rest.
If your margin is sufficient after this step, accounting for realized losses and liquidation fees, liquidation stops.
Step 4: Execution
If not, your remaining position is closed at the bankruptcy price, and the position is handed over to the liquidator vault:
When a cross position is backstop liquidated, the trader's cross positions and cross margin are all transferred to the liquidator. In particular, if the trader has no isolated positions, the trader ends up with zero account equity.
When an isolated position is backstop liquidated, that isolated position and isolated margin are transferred to the liquidator. The user's cross margin and positions are untouched.
During backstop liquidation, the maintenance margin is not returned to the user. This is because the liquidator vault requires a buffer to make sure backstop liquidations are profitable on average. In order to avoid losing the maintenance margin, traders can place stop loss orders or exit the positions before the mark price reaches the liquidation price.
💡 The bankruptcy price refers to the price at which the amount of loss of the trader is equal to the value of the deposited collateral or the initial margin. From this price, the margin balance of the user whose position is forced to be closed will be reduced to zero.
Liquidator Vault
Backstop liquidations on TxFlow are democratized through the liquidator vault, which is a component strategy of Protocol Vault.
On average, backstop liquidations are profitable for the liquidator. On most venues, this profit goes to the exchange operator or privileged market makers who internalize the flow. On TxFlow, the pnl stream from liquidations goes entirely to the community through Protocol Vault.
Related Pages
Calculation of Mark Price and Oracle Price
Protocol vault does market making and liquidations and receives a portion of trading fees.
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