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Liquidation is the process of closing out a trader’s positions when their account no longer has enough margin to support them. Think of it as a safety valve: it prevents one trader’s losses from growing so large that they affect other users on the platform. This page explains when liquidation happens, how it works on Orderly, and what fees are involved.

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When does liquidation happen?

An account is subject to liquidation if its Account Margin Ratio falls below its Maintenance Margin Ratio. In simple terms, if the value backing your positions shrinks too much relative to the size of those positions, the system steps in. Orderly uses the Mark Price to evaluate positions, not the last traded price. Because the Mark Price is derived from multiple reputable spot exchanges (see Index Price) and the funding rate, it is more stable than the Last Price. This makes it much harder for bad actors to manipulate the market price just to trigger liquidations. When an account enters liquidation, two things happen immediately:
  1. All open orders on the account are cancelled.
  2. The account’s USDC balance is frozen.

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How Orderly’s decentralized liquidations work

On most centralized exchanges (CEXes), liquidations work by force-selling positions directly into the order book. This often causes a chain reaction: the forced selling pushes the price down further, which triggers more liquidations, which pushes the price down even more. This cascading effect hurts traders and creates opportunities for market manipulation. Orderly does things differently. Instead of dumping positions onto the order book, Orderly transfers them to liquidators at a discount. Anyone with an Orderly account can act as a liquidator, as long as they have enough margin to take over the positions. This approach is fully decentralized and avoids the cascading liquidation problem. Further details on how to claim liquidating positions can be found in the API docs.

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What triggers a liquidation?

A liquidation is triggered if the Account Margin Ratio (AMR) drops below the Maintenance Margin Ratio (MMR) required for the account. For details on how MMR is calculated, see Maintenance Margin Ratio.

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Liquidation tiers

Not all trading pairs carry the same risk. Orderly groups them into two tiers, which affects how liquidators can claim positions:
  • Low Tier Risk: Liquidators must claim a proportional share of all low-tier positions. They cannot cherry-pick just one symbol.
  • High Tier Risk: Liquidators can claim a single symbol at a time.
TierPerp Markets
LowBTC ; ETH
HighOthers

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How much gets liquidated?

The system calculates how much of a position needs to be liquidated for both low-tier and each high-tier symbol. The goal is to liquidate just enough so that the Account Margin Ratio comes back up to the Initial Margin Ratio. In other words, the system tries to do the minimum necessary rather than wiping out the whole account. If the account has multiple positions in the low-tier group, each position is partially liquidated in proportion to its size (volume-weighted).

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Liquidation fees

When an account is liquidated, a fee is charged. This fee is split between the Orderly Insurance Fund and the liquidator who takes over the positions. The fee rates depend on which market the position is in:
Perp MarketLiquidation FeeLiquidator Fee
BTC0.60%0.30%
ETH0.60%0.30%
SOL0.60%0.30%
Others1.20%0.60%
Here is how the total fees are calculated: Low Tier Liquidation (multiple symbols liquidated together): 
User Liquidation Fee = Sum[Liquidation Fee(Symbol i) * Abs(Notional i)]
Liquidator Fee = Sum[Liquidator Fee(Asset i) * Abs(Notional i)]
High Tier Liquidation (one symbol at a time): 
User Liquidation Fee = Liquidation Fee(Symbol i) * Abs(Notional i)
Liquidator Fee = Sum[Liquidator Fee(Asset i) * Abs(Notional i)]
How the fee is split depends on how much margin the liquidated account has left:
  • Plenty of margin remaining: If the Account Margin Ratio is higher than the User Liquidation Fee, the fee is split evenly — the Insurance Fund and the liquidator each receive 0.5 * User Liquidation Fee.
  • Low margin remaining: If the Account Margin Ratio is between the User Liquidation Fee and the Liquidator Fee, the liquidator still gets 0.5 * User Liquidation Fee, and whatever is left goes to the Insurance Fund.
  • Almost no margin remaining: If the remaining margin cannot even cover the Liquidator Fee, the account’s entire balance and positions are transferred to the Insurance Fund. Liquidators can still claim those positions later (see Insurance Fund & ADL).

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Full vs. partial liquidator takeover

Liquidators do not always have to take over the entire position. Whether they can take a partial amount depends on the size of the position:
  • Below the threshold: For low-tier liquidations under 10,000 USDC notional, the liquidator must take over all positions. For high-tier liquidations under 5,000 USDC notional, the liquidator must claim the entire position for that symbol.
  • Above the threshold: The liquidator can choose to take over just a percentage of the positions, as long as the notional they take exceeds the threshold.
Before any transfer happens, Orderly checks that the liquidator actually has enough margin to absorb the positions, using the same margin checks that apply to new order placements.