Kwenta Documentation
DiscordKwentaTwitterBlog
  • 🥂Welcome to Kwenta
  • Getting Started
    • How to start using Kwenta
    • Introduction
    • Getting started on Optimism
    • How to get sUSD
    • Access Kwenta
      • Installing the IPFS Companion to Access Kwenta
      • Backup RPCs
      • Withdrawing from v2 Isolated Margin using Optimistic Etherscan
  • Using Kwenta
    • Futures on Kwenta
    • Jargon
    • Synthetix Isolated Margin
      • Funding
        • Technical Details
      • Delayed Orders
      • Maker/Takers on Kwenta
      • Leverage
      • Liquidations
      • Initial/Maintenance Margin
      • One-Click Trading
        • Onboarding to 1CT
        • FAQ
      • Smart Margin
        • Dashboard Overview
        • Futures UI Overview
        • Get Started with Smart Margin
          • Withdrawing sUSD & ETH
          • Opening/Closing Positions
          • Conditional Orders
            • Limit Orders
            • Stop-Loss Orders
          • FAQ
      • Delegated Trading
        • Getting started
        • Managing Delegates
        • Accessing Accounts Delegate to You
      • Fees
      • Referral Program
        • The Traders Tab
        • The Affiliates Tab
        • Incentive Tiers and Rewards
      • FAQ
    • Perennial Isolated Margin
      • Perennial Intro
        • Market Design
        • Oracles
        • Payoff & Positions
        • Trading Fees and Price Impact
        • Funding Rate
        • Interest Rate
        • Leverage & Liquidations
        • Collateral
        • CodeBase
      • Bridging to Arbitrum
      • Trading on Perennial
        • Dashboard Overview
        • Futures UI Overview
        • Opening/Closing Positions
        • Advanced Orders
          • Limit Orders
          • Stop-Loss Orders
      • Gasless Trading
        • Onboarding to 1-Click-Trading
        • FAQ
  • Kwenta Token
    • Staking KWENTA
      • How to stake KWENTA
      • Escrow and Vesting
      • Transferring Escrow Entries
    • Claiming Rewards
    • Trading Rewards
  • DAO
    • Kwenta Token
    • Governance
    • MarketingDAO
    • devDAO
      • Contributing to the Kwenta Frontend
        • Troubleshooting
        • Testing
  • Developers
    • Deployed Contracts
      • V2 Futures Market Proxy Contracts
    • Verify Kwenta
    • Kwenta SDK
  • Resources
    • Audits
    • Development progress Epoch 1 2024
    • GitHub
Powered by GitBook
On this page

Was this helpful?

  1. Using Kwenta
  2. Synthetix Isolated Margin

Liquidations

Liquidations in futures trading refer to the forced closure or unwinding of a trader's open futures position due to insufficient margin or collateral to cover potential losses.

Liquidations in futures trading happen for several reasons:

  1. Margin requirements: When trading futures, traders are required to deposit a certain amount of money, called margin, as collateral to enter into a contract. This margin acts as a safety buffer to ensure that both counterparties can meet their obligations in the event of adverse market movements. The margin consists of two components: the initial margin and the maintenance margin. The initial margin is the amount required to open a futures position, while the maintenance margin is the minimum amount of equity that must be maintained in the account to keep the position open.

  2. Market volatility: Unexpected price movements or increased market volatility can cause the value of a futures position to decrease rapidly. If the account balance falls below the maintenance margin, the trader will receive a margin call, requiring them to either deposit additional funds or close their positions to meet the margin requirements. Failure to do so may lead to liquidation, wherein the broker forcibly closes the trader's open positions to protect against further losses.

  3. Leverage: Futures trading involves leverage, which amplifies both profits and losses. While leverage allows traders to control larger positions with a smaller amount of capital, it also increases the risk of liquidation. A highly leveraged position can quickly lead to significant losses if the market moves against the trader, causing their account balance to fall below the maintenance margin level.

In summary, liquidations in futures trading occur when traders fail to maintain the required margin levels due to market volatility and leverage.

PreviousLeverageNextInitial/Maintenance Margin

Last updated 1 year ago

Was this helpful?