Liquidation - Trading Glossary

Liquidation on AsterDEX occurs when your position’s margin falls below the maintenance requirement, forcing automatic closure to prevent further losses and protect the platform’s insurance fund.

How Liquidation Works

Liquidation Trigger

Liquidation occurs when:
Mark Price reaches Liquidation Price

Liquidation Price = Entry Price × (1 ± Maintenance Margin Rate)

For Long Positions:

Liquidation Price = Entry Price × (1 - Maintenance Margin Rate)

For Short Positions:

Liquidation Price = Entry Price × (1 + Maintenance Margin Rate)

Liquidation Process

1. Margin monitoring: System continuously checks position health
2. Liquidation triggered: When mark price hits liquidation level
3. Position closure: Market order to close entire position
4. Fee deduction: Liquidation fee taken from remaining margin
5. Insurance fund: Covers any remaining shortfall

AsterDEX Liquidation Mechanics

Maintenance Margin Requirements

Asset	Initial Margin	Maintenance Margin	Max Leverage
BTC/USDT	5%	2.5%	20x
ETH/USDT	10%	5%	10x
Altcoins	20%	10%	5x
Microcaps	50%	25%	2x

Liquidation Fees

• Standard fee: 0.5% of position notional value
• Partial liquidation: Pro-rated based on liquidated size
• Insurance fund contribution: Remaining margin after fees

Calculating Liquidation Risk

Liquidation Price Formula

Example: Long BTC at $45,000 with 10x leverage

Entry Price: $45,000
Leverage: 10x (10% initial margin)
Maintenance Margin: 2.5%

Liquidation Price = $45,000 × (1 - 0.025) = $43,875
Risk: Position liquidates if BTC falls to $43,875

Distance to Liquidation

Liquidation Distance = (Current Price - Liquidation Price) / Current Price × 100%

Safe zones:

• Green: >10% distance to liquidation
• Yellow: 5-10% distance to liquidation
• Red: <5% distance to liquidation

Liquidation Prevention Strategies

Position Sizing

Conservative approach:

• Use 3-5x leverage maximum
• Maintain >20% distance to liquidation
• Size positions for 10-15% adverse moves

Risk management rules:

Safe Leverage = Max Leverage × 0.5
Example: If max leverage is 20x, use maximum 10x

Margin Management

• Add margin: Before distance drops below 10%
• Reduce position: Scale out when under pressure
• Stop losses: Manual exits before liquidation
• Partial closes: Reduce exposure incrementally

Types of Liquidation

Full Liquidation

• Entire position closed: All contracts liquidated at once
• Maximum loss: Lose all initial margin plus fees
• Account impact: Potentially wipes out significant capital

Partial Liquidation

• Gradual closure: System reduces position in steps
• Margin restoration: Brings account back above maintenance
• Continued trading: Remaining position stays active

Cross vs Isolated Liquidation

Cross Margin Liquidation:

• Entire account liquidated when total equity insufficient
• All positions closed simultaneously
• Higher risk but better capital efficiency

Isolated Margin Liquidation:

• Only specific position liquidated
• Other positions unaffected
• Lower risk but less capital efficient

Liquidation Market Impact

Price Impact During Liquidations

• Large positions: Can move market price significantly
• Cascade effect: One liquidation can trigger others
• Volatility spike: Increased trading activity and spread widening

Auto-Deleveraging (ADL)

When insurance fund insufficient:

1. Profitable traders: May have positions reduced
2. Priority ranking: Based on profit and leverage
3. Fair distribution: Proportional to risk contribution

Advanced Liquidation Management

Dynamic Hedging

Spot hedge:

• Long perpetual + short spot position
• Reduces liquidation risk through offsetting exposure
• Requires managing basis risk

Options protection:

• Buy puts when long perpetuals
• Buy calls when short perpetuals
• Costs premium but provides downside protection

Liquidation Alerts

Set multiple warning levels:

• 15% distance: First warning, review position
• 10% distance: Consider adding margin
• 5% distance: Take action immediately

Common Liquidation Mistakes

1. Overleveraging: Using maximum available leverage
2. No monitoring: Not watching liquidation distance
3. Averaging down: Adding to losing positions near liquidation
4. Correlation blindness: Multiple correlated positions liquidating together
5. Platform confusion: Not understanding exchange-specific mechanics

Emergency Liquidation Response

When approaching liquidation:

1. Assess situation: Is this temporary volatility or trend change?
2. Add margin: If you believe in the position direction
3. Reduce size: Close portion to increase liquidation distance
4. Exit entirely: If trend has changed against you
5. Learn from it: Analyze what led to the situation

Liquidation Prevention Checklist

Before every leveraged trade:

1. ✅ Calculate exact liquidation price
2. ✅ Ensure >15% distance to liquidation
3. ✅ Set liquidation distance alerts
4. ✅ Plan margin addition or exit levels
5. ✅ Consider worst-case scenario moves
6. ✅ Size position for survival, not maximum profit

Liquidation is the enemy of long-term trading success—always prioritize capital preservation over potential gains.