How Does the Liquidation Process on a Crypto Futures Exchange Typically Work?
Liquidation occurs when a trader's margin balance falls below the maintenance margin requirement. The exchange's risk engine automatically takes over the position.
It attempts to close the position at the best available price to prevent further losses. If the position cannot be closed above the bankruptcy price, the insurance fund covers the deficit.
This process is crucial for maintaining the solvency of the exchange and protecting other users.
Glossar
Crypto Futures Exchange
Leverage ⎊ A crypto futures exchange facilitates leveraged exposure to underlying cryptocurrency assets, enabling traders to amplify potential returns ⎊ and risks ⎊ through margin.
The Liquidation Process
Process ⎊ The liquidation process is the automated, irreversible sequence of events triggered when a leveraged position's collateral value falls below the minimum maintenance margin required by a derivatives or lending protocol.