Account-Wide Liquidation

Account-wide liquidation is a risk management mechanism used by centralized and decentralized exchanges where an entire user account is evaluated for solvency rather than individual positions. When the total value of the collateral in an account falls below the maintenance margin requirement due to adverse price movements or volatility, the protocol triggers a forced closure of all open positions simultaneously.

This process ensures that the exchange can cover potential losses and prevent negative balances that would threaten the system integrity. By aggregating the risk across all assets and positions within a single account, the protocol can swiftly exit exposure to protect the liquidity pool and other participants.

It is a harsh but necessary safeguard in high-leverage environments to mitigate systemic risk. This mechanism often leads to rapid, cascading price movements if many large accounts hit their liquidation thresholds at the same time.

Understanding this is crucial for traders to manage their margin buffers effectively across diverse assets. The goal is to maintain the health of the broader financial ecosystem by preventing insolvency.

It differs from isolated margin, where only a specific position is liquidated. Ultimately, it serves as the final barrier against cascading bad debt in leveraged trading.