Liquidations

Overview

Liquidation is triggered when an account's margin balance falls below its maintenance margin requirement.

All risk checks are evaluated against mark price, not last-trade price, to reduce manipulation exposure.

Trigger Condition

An account becomes liquidation-eligible when:

$$\text{Margin Balance} < \text{Maintenance Margin Requirement}$$

Before liquidation execution begins:

• All risk-increasing actions are blocked
• Open orders are canceled to release margin

Breach Ladder (IM to MM)

OBSDN applies a staged response before and during liquidation:

Stage 1: IM breach

Condition:

$$\text{IM Requirement} > \text{Margin Balance} \ge \text{MM Requirement}$$

• Account enters a reduce-only risk posture
• New risk-increasing orders are blocked by margin checks
• Risk-reducing actions (close/reduce/hedge) remain available

Stage 2: MM breach

Condition:

$$\text{Margin Balance} < \text{MM Requirement}$$

• Account becomes liquidation-eligible
• Engine starts position reduction through liquidation flow

Execution Flow

1. Orderbook Liquidation

Positions are reduced or closed against available book liquidity.

2. Backstop / Vault Absorption

If orderbook execution cannot restore maintenance compliance, a backstop mechanism absorbs the residual risk.

3. Auto-Deleveraging (ADL)

If losses exceed combined backstop capacity, ADL is triggered against ranked counterparties to preserve platform solvency.

Partial vs Full Liquidation

• Partial liquidation: only the minimum size required to restore margin compliance is reduced.
• Full liquidation: the entire position is closed when partial reduction is insufficient to restore compliance.

Bankruptcy Semantics

Bankruptcy price is the price at which account equity reaches zero for the relevant position set.

If a liquidation closes below the bankruptcy price (negative equity), the deficit is absorbed by the insurance fund. See ADL and Insurance Fund.

Isolated vs Cross

• Isolated: only margin allocated to the specific position is at risk; other positions and account balance are unaffected.
• Cross: all cross-margined positions draw from shared account collateral; a liquidation event affects the full cross portfolio.

Liquidation Telemetry and Audit Fields

For monitoring and post-trade analysis, OBSDN exposes liquidation-related status and audit data across portfolio, position, and order entities, including:

• Liquidation-state flags
• Margin-ratio and health indicators
• Liquidation price context
• Forced-execution markers, fee metadata, and completion reasons

These signals allow risk systems to distinguish ordinary execution from forced liquidation activity.

For exact response fields, see:

• Get portfolio
• Get order details

Related

• Margin System
• ADL and Insurance Fund
• Mark Price