95 lines
3.4 KiB
Markdown
95 lines
3.4 KiB
Markdown
> ## Documentation Index
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> Fetch the complete documentation index at: https://docs.polymarket.com/llms.txt
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> Use this file to discover all available pages before exploring further.
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# Liquidation Mechanics
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> Detection, execution, and insurance-fund backstop
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When a trader's equity drops below maintenance margin, the system closes the
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position before it becomes insolvent. Normal liquidations route through the order
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book as reduce-only immediate-or-cancel orders. If the breach is severe, the
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position is absorbed directly by the insurance fund instead.
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## Trigger
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An account or isolated position is at risk when:
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```text theme={null}
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MarginRatio = Equity / MaintenanceMargin
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```
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Liquidation starts when `MarginRatio < 1.0`, which means `Equity < MM`.
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Cross and isolated positions are checked independently:
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* Cross uses the account's cross equity and combined cross maintenance margin.
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* Isolated evaluates each isolated position using its own equity and maintenance margin.
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Margin health is re-evaluated continuously, so the system reacts as soon as a new
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Mark Price, fill, or deposit moves the account across the threshold.
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## While Liquidating
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When liquidation starts, the affected scope is flagged:
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* Cross liquidation blocks new orders on every market for the account.
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* Isolated liquidation blocks new orders only on the affected market.
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Order submissions from the account are rejected while the flag is set. Existing
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resting orders remain on the book.
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## Execution
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The system closes flagged positions with reduce-only immediate-or-cancel orders.
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These orders execute immediately against available liquidity and cancel any
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unfilled quantity. Margin health is re-evaluated between orders, so partial fills
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that restore the account naturally stop the process.
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### Target Selection
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Cross liquidation closes one position at a time. After each fill settles, the
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system re-evaluates and picks again from the remaining cross positions, so a
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trader with multiple cross positions is unwound across several cycles rather than
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all at once.
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Isolated liquidation closes the flagged position in full.
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### Order Shape
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Liquidation orders are IOC, reduce-only, and market-priced. They sweep whatever
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liquidity is resting on the book at the moment they land. There is no protective
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spread off Mark.
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## Recovery
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When a liquidating account's equity recovers to or above its recovery initial
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margin, the flag clears and normal order submission resumes.
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If a position is fully closed during liquidation, the flag is also cleared because
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the market no longer has a position to liquidate.
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## Insurance-Fund Backstop
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If equity falls far enough below maintenance margin that order-book liquidation is
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unlikely to recover value, the system skips the order book and absorbs the
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position into the insurance fund.
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* Cross backstop absorbs all of the trader's cross positions plus their quote-asset balance into the insurance-fund account.
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* Isolated backstop absorbs the specific isolated position and its allocated isolated margin.
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Once absorbed, the insurance fund holds the position and manages it like any other
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account.
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## Fees
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The liquidating account pays an extra liquidation fee on every fill while flagged,
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on top of its normal maker or taker rate.
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```text theme={null}
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FillFee = Notional * (MakerOrTakerRate + LiquidationFeeRate)
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```
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Liquidation fee rates vary by market. If you're integrating Perps, read current
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values from [Market Data](/perps/market-data#fetch-instruments).
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