Liquidation happens when the Mark Price falls (for longs) or rises (for shorts) to your liquidation price. At that point, your position no longer has enough margin to meet the maintenance margin requirement, so the system steps in to close it. The actual close is executed at the bankruptcy price, which is the level where your initial margin is fully used. This design prevents losses from spilling beyond your margin and helps keep the platform safe for everyone.
On Mudrex (in line with industry practice), the Mark Price—not the last traded price—triggers liquidation. That means even if the last trade hasn’t touched your level, liquidation can still start if the Mark Price has. This avoids unfair stop-outs from brief wicks and keeps risk checks anchored to a fair reference price.
How the liquidation price is determined (isolated margin)
In isolated margin, the margin you allocate to a position is ring-fenced from the rest of your balance. The liquidation price comes from your entry, the initial margin you posted, the maintenance margin the position must keep, your position size, and any extra margin you manually add later. A concise way to see it is:
For a long position, the liquidation price is roughly your entry price minus the per-unit cushion you have between initial margin and maintenance margin (adjusted for any extra margin you’ve added). For a short, it’s the entry plus that cushion per unit.
- Long: LP = Entry − [(Initial Margin − Maintenance Margin) / Position Size] − (Extra Margin / Position Size)
- Short: LP = Entry + [(Initial Margin − Maintenance Margin) / Position Size] + (Extra Margin / Position Size)
Example (Long, isolated)
Suppose you buy 2 ETH at an entry of 2,400 USDT with 20× leverage. Assume the MMR is 0.5% and you add no extra margin.
- Position value = 2 × 2,400 = 4,800 USDT
- Initial margin = 4,800 ÷ 20 = 240 USDT
- Maintenance margin = 4,800 × 0.5% = 24 USDT
- Cushion = Initial − Maintenance = 240 − 24 = 216 USDT
- Per-unit cushion = 216 ÷ 2 = 108 USDT
- Liquidation price (long) = Entry − per-unit cushion = 2,400 − 108 = 2,292 USDT
If the Mark Price falls to 2,292 USDT, liquidation is triggered. The position is then closed at the bankruptcy price (the 0%-margin level). If the close ends up better than the bankruptcy price, the excess goes to the Insurance Fund; if worse, the Insurance Fund covers the gap.
Adding or losing margin moves the liquidation price
If you add extra margin to an isolated position, you increase the cushion and push the liquidation price farther away from the current Mark Price (safer). Conversely, if funding fees or other charges are deducted from your position margin, your cushion shrinks and the liquidation price moves closer to the Mark Price, making liquidation more likely if the market moves against you.
Key takeaway: Liquidation starts when the Mark Price reaches your liquidation price; the close is executed at the bankruptcy price (0%-margin level). In isolated margin you control risk per position with the margin you allocate. These rules—and the supporting Insurance Fund—ensure losses are contained to posted margin and the system remains stable.
