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What is Liquidation?

Liquidation is the process of closing a trader’s position due to the loss of all, or nearly all, of the trader’s Initial Margin. On Phemex, your position is automatically closed if the mark price reaches your liquidation price. Long positions have a liquidation price lower than the original entry price and vice versa for short positions.

Contracts on Phemex can be highly leveraged. To keep these positions open, you are required to hold a percentage of the value of the position on the exchange, known as the Maintenance Margin. If you cannot fulfill your maintenance requirements, your positions will be liquidated and your initial margin will be lost. Phemex uses a Fair Price Marking mechanism to help users avoid forced-liquidations due to lack of liquidity or manipulation.

Risk Limits also apply to larger position sizes that require higher margin levels. This extra margin allows our liquidation system to operate more efficiently with large positions that would otherwise be difficult to close safely. When liquidation is triggered, our system will cancel any open orders for that current contract in an attempt to free up funds to maintain the position. Orders on different contracts will still remain open.

NOTE: To understand how liquidation prices are calculated, please view How are Liquidation Prices calculated?

In some cases, even with a positive PnL your position may automatically be partially or fully closed. To understand why, read this article.

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