How Does a Futures Exchange Handle “Price Slippage” during Liquidation?

Exchanges use various methods to minimize slippage during liquidation. They often employ 'smart order routing' or 'iceberg orders' to execute the liquidation over multiple smaller trades, preventing a single large order from significantly moving the market.

The use of the Mark Price for the liquidation trigger, rather than the Last Traded Price, also reduces the impact of short-term volatility. Any remaining slippage that causes a negative balance is covered by the insurance fund.