GUIDE · ~3 MIN

What happens when you get liquidated

What actually happens when my position is liquidated?

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FAQ

What happens when your perp position gets liquidated?

When mark-based equity falls below maintenance margin, the venue's liquidation engine closes your position — usually at market, often via reduce-only orders into the book. You lose control of the position immediately; remaining margin after the close may be returned or partially consumed by slippage. There is no grace period on most crypto venues.

Who receives the collateral when I am liquidated?

The exchange matches your forced close against other traders or internal liquidity. Proceeds first cover your loss; any excess may return to you. If the close fills worse than your bankruptcy price, the shortfall hits the venue's insurance fund or, in extreme cases, counterparty mechanisms like ADL — not a "winner takes your stack" transfer to one trader.

What is the insurance fund on a crypto exchange?

It is a pool funded by liquidation fees and residual balances to absorb losses when liquidations cannot cover deficits — when mark moves so fast that the engine closes below bankruptcy. It protects the platform from negative balances; it is not deposit insurance for your trading P&L.

What is ADL and when does it happen?

Auto-deleveraging forcibly closes profitable offsetting positions when the insurance fund cannot cover shortfalls — typically after extreme moves and crowded one-sided books. It is rare on deep markets but real in cascades. Socialized loss mechanisms spread residual pain when even ADL is insufficient.

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