Forced Liquidation Mechanisms

Forced liquidation mechanisms are the automated processes an exchange uses to close a trader's position when margin requirements are no longer met. These mechanisms are designed to protect the exchange's capital and the integrity of the broader market by ensuring that all trades remain fully collateralized.

When a position reaches its liquidation threshold, the engine automatically executes a market order to close the position at the best available price. This process must be highly efficient and robust to handle high volumes of trades, especially during market volatility.

By standardizing these mechanisms, exchanges ensure fair and predictable outcomes for all participants, although the sudden execution can result in slippage for the affected trader.