# Liquidation Process ⎊ Area ⎊ Resource 2

---

## What is the Process of Liquidation Process?

The automated, on-chain sequence of events triggered when a margin position's collateral ratio falls below a predefined threshold, forcing the closure of the position to protect the solvency of the platform. This mechanism is typically executed by an independent liquidator bot that captures a fee for its service. Understanding the exact parameters of this sequence is vital for leveraged traders.

## What is the Execution of Liquidation Process?

The immediate and often aggressive selling of the underlying collateral or position to cover the deficit created by adverse market movement. This action is designed to be swift to minimize losses for the system, but it can contribute to cascading market volatility. The efficiency of this step directly impacts the final loss absorbed by the defaulting party.

## What is the Margin of Liquidation Process?

The required collateral posted to support a leveraged position, which serves as the buffer against adverse price action before the forced closure is initiated. Insufficient margin coverage triggers the entire sequence, making its initial calculation and subsequent maintenance a core element of risk management in derivatives trading. Adjustments to margin parameters are often a governance decision.


---

## [Blockchain Verification Ledger](https://term.greeks.live/term/blockchain-verification-ledger/)

## [Decentralized Order Book Design Guidelines](https://term.greeks.live/term/decentralized-order-book-design-guidelines/)

## [Regulatory Proof-of-Compliance](https://term.greeks.live/term/regulatory-proof-of-compliance/)

---

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**Original URL:** https://term.greeks.live/area/liquidation-process/resource/2/