Liquidation Mechanics
When a trader's margin falls below the maintenance requirement, their position is forcibly closed to prevent the protocol from absorbing bad debt. In leveraged perp markets, cascading liquidations can amplify price moves dramatically — a 5% drop can trigger forced selling that produces a 15% crash. Understanding margin math is survival knowledge for leveraged traders.
💀 Margin & Liquidation Calculator
Adjust leverage, collateral, and entry price. The gauge shows how far the current price is from your liquidation price. The red zone is where you get liquidated.
Position Size
$100,000
Liquidation Price
$1,900
Distance to Liq
-5.0%
Unrealized PnL
-$2,000
Margin Ratio
8.0%
Liq Penalty
$500
🌊 Liquidation Cascade Simulator
Watch how a price drop triggers liquidations → forced selling → more price drop → more liquidations. This positive feedback loop is the infamous liquidation cascade. Click "Run Cascade" to animate it step by step.
🛡️ Insurance Fund & Auto-Deleveraging
💰
Funded By
Liquidation penalties (typically 0.5-1% of position), trading fees, protocol treasury, initial seed funding
🏦
Insurance Fund
Absorbs bad debt when a position's bankruptcy price is worse than its liquidation price. The gap = socialized loss.
⚠️
ADL (Last Resort)
Auto-deleveraging: the most profitable opposing positions are forcibly reduced to cover losses. Rare but can happen in extreme volatility.
📋 Leverage Tiers (Typical)
| Position Size | Max Leverage | Maint. Margin | Move to Liq |
|---|---|---|---|
| < $50K | 125x | 0.4% | ~0.4% |
| $50K-$250K | 50x | 1% | ~1% |
| $250K-$1M | 20x | 2.5% | ~2.5% |
| $1M-$5M | 10x | 5% | ~5% |
| > $5M | 5x | 10% | ~10% |
💡 Survival tips: Use isolated margin (not cross-margin) to limit blast radius. Set stop-losses above your liquidation price. Avoid max leverage — a 2% wick on 100x and you're done. In cascades, liquidity thins out and slippage kills you before the liquidation engine even fires.