How Is ‘Liquidation’ Triggered in a Leveraged Cryptocurrency Position?
Liquidation is triggered when the value of the collateral in a leveraged position falls below the Maintenance Margin requirement. The exchange's liquidation engine automatically closes the position to prevent the trader's balance from falling below zero, usually using the Mark Price to avoid flash crash manipulation.
Glossar
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Leveraged Position
Position ⎊ A leveraged position, within cryptocurrency derivatives, options trading, and broader financial derivatives, represents an exposure exceeding the initial capital outlay, amplified through instruments like perpetual futures contracts, leveraged tokens, or options.
Liquidation Engine
Mechanism ⎊ A Liquidation Engine within cryptocurrency derivatives functions as an automated process triggered by margin calls, designed to mitigate counterparty risk for exchanges and lenders.