How Does the Liquidation Process Work on a Crypto Futures Exchange?

Liquidation is triggered when a trader's margin balance falls below the maintenance margin requirement. The exchange's risk engine automatically takes over the position to close it.

The goal is to sell the position quickly to cover the loss before the account equity reaches zero (bankruptcy price). If the position cannot be closed above the bankruptcy price, the insurance fund covers the deficit.

This automated process protects the exchange and the wider market.