Liquidation

If auto-liquidation is set to true, then positions will start to be closed if the pool balance falls below the maintenance margin requirements. Remember that everything works on a per pool basis, and collateral in one pool does not count for other pools.

Due to the nature of bilateral trading, a position being closed means it will be closed for both parties. The party whose balance has fallen below the maintenance margin requirement (and thus caused the liquidation) will be tagged as the taker, and the other party the maker.

The taker will incur a liquididation penalty, which is a pool parameter. For example, if the penalty is set to 0.1 , then the taker will buy to close at the mark price + 10%, and sell to close at the mark price - 10%.

Note: for options, the penalty will apply to the implied volatility. So options would be bought at an implied volatility 10% higher in our previous example.