Cross Margin Liquidation Logic

Cross margin liquidation logic is a risk management mechanism where the entire balance of a trading account acts as collateral for all open positions. Unlike isolated margin, where each position is siloed, cross margin pools the equity across multiple trades.

If the total maintenance margin requirement exceeds the account equity, the system triggers a liquidation process. The protocol automatically closes positions to restore the account to a safe margin level or fully liquidates the portfolio to cover debts.

This mechanism protects the exchange from insolvency during extreme market volatility. It relies on real-time mark-to-market valuations of all held assets.

If one position incurs significant losses, the equity from other profitable positions can temporarily sustain the account. However, this increases the risk of a cascading effect where a single bad trade can deplete the entire account balance.

The logic is designed to ensure that the total account value remains above the required maintenance threshold at all times.