Skip to main content
  • Step 1: Cancel Open Orders The very first action taken by the liquidation engine is to cancel all open orders for the same instrument:
    • All limit orders
    • All stop orders
    • Any resting order that could increase position size or margin usage
    This step frees up reserved margin and ensures the position cannot grow further during the liquidation process.
  • Step 2: Position Status Change to Liquidation Setting the status to Liquidation officially triggers the liquidation pipeline and prevents normal trading actions on that position.
  • Step 3: Creation of the Liquidation Order This step is to create a liquidation limit order with type liquidation. Key properties of this order:
    • Placed exactly at the bankruptcy price
    • Behaves like a normal limit order inside the order book
    • Can be fully or partially filled
  • Step 4: Execution Process The liquidation order enters the order book and waits to be matched:
    • If liquidity is available at bankruptcy price:
      The order fills immediately or progressively.
    • If liquidity is scarce:
      The order may sit in the order book and fill slowly.
  • Step 5: Liquidation Outcomes If the order is fully filled:
    • The position is closed
    • Any execution better than bankruptcy sends surplus to the Insurance Fund
    If only part of the order fills:
    • The position size decreases by the filled amount
    • The liquidation order remains active
    • The engine continues to attempt to fill the remainder over time
    This continues until:
    • The entire position is closed, or
    • The system determines the order cannot fill at bankruptcy price
    If the order cannot fill at bankruptcy price:
    • The system checks the Insurance Fund
    • If the fund cannot cover the shortfall → ADL activates
    • ADL then redistributes the remaining loss to high-ranked traders on the opposite side
This approach ensures liquidations are executed efficiently while minimizing market disruption. For post-liquidation outcomes and handlings, see Post-Trade Risk Management.
Last modified on March 23, 2026