Liquidation Scope

Liquidation Scope refers to the boundary and extent of positions or collateral subject to forced closure by a protocol or exchange when a user account fails to meet minimum margin requirements. It defines which specific assets or sub-accounts are vulnerable to being sold off to cover losses and maintain the solvency of the platform.

This mechanism is critical in derivatives and leveraged trading to prevent a cascading failure where bad debt exceeds the insurance fund. The scope is often determined by the cross-margin or isolated-margin settings selected by the trader.

When a position enters the liquidation scope, the protocol automatically executes market orders to reduce risk. This process ensures that the platform remains collateralized even during extreme market volatility.

It encompasses both the threshold price at which liquidation is triggered and the range of collateral assets accessible for seizure. Understanding this scope helps traders manage their risk exposure effectively.

Failure to account for the liquidation scope can lead to total loss of margin during rapid price movements.