How Crypto Liquidations Work: Margin, Mark Price, and What Happens When You Get Liquidated

Liquidation is the forced closure of your position when you no longer have enough margin to sustain it. It is how exchanges protect themselves — and other traders — from accounts going negative. Understanding the mechanics precisely can mean the difference between a painful loss and a catastrophic one.

The Margin Stack

Three numbers govern when liquidation happens:

Account equity:

Equity = Wallet balance + Unrealized PnL

This is the true value of your account at any moment. It moves continuously with market price.

Initial margin: The collateral required to open a position. At 10x leverage, initial margin = 10% of position notional. You cannot open a position without at least this much free margin.

Maintenance margin: The minimum equity required to keep a position open. Typically 50–80% of the initial margin requirement. Lower leverage = lower maintenance margin as a percentage.

Liquidation trigger:

Liquidation triggers when: Equity < Maintenance Margin

Not when equity falls below zero. Not when you have a loss. Only when equity falls below the specific maintenance threshold.

Mark Price vs Last-Traded Price

This distinction prevents a specific type of harm: liquidation from a momentary price wick.

Last-traded price is the price of the most recent match on the exchange. It can spike temporarily due to a large market order, thin liquidity, or a brief manipulation attempt — then immediately recover.

Mark price is calculated as:

Mark Price = Spot Index Price + EMA(Perp - Spot)

Where:

• Spot Index Price = median of major exchange spot prices
• EMA = exponential moving average of the basis (perp premium/discount)

Mark price moves smoothly with the spot market. A 1-second wick in last-traded price barely moves the mark price because the EMA smooths it out.

Why this matters: If your liquidation price is $95,000 on BTC and the last-traded price briefly wicks to $94,800 before recovering to $96,000, you should NOT be liquidated. Exchanges that use mark price protect you from this. Exchanges that use last-traded price for liquidation can liquidate you on wicks.

BULK Exchange uses mark price for liquidation calculations.

How the Liquidation Process Works

Step 1: Continuous monitoring. The exchange (or in BULK’s case, every validator) continuously calculates each account’s equity using mark price. When equity approaches maintenance margin, the exchange issues a margin warning.

Step 2: Margin call (on some exchanges). Some exchanges notify you before liquidation that your margin is low. You have the opportunity to add margin or reduce your position.

Step 3: Liquidation trigger. When equity falls below maintenance margin, the liquidation engine activates. The exchange takes control of the position and closes it.

Step 4: Execution. The exchange closes the position at market price. If the position can be closed at a price that leaves positive equity, the remaining equity is returned to the account.

Step 5: Insurance fund (if needed). If the position closes at a price worse than the liquidation price (e.g., in a fast market where slippage occurs), the account goes to zero. The exchange’s insurance fund covers the shortfall to protect other traders.

Step 6: Auto-deleveraging (last resort). If the insurance fund is insufficient, auto-deleveraging (ADL) reduces the positions of the most profitable traders on a pro-rata basis. This is rare and documented as such by BULK Exchange.

BULK Exchange’s Liquidation Optimizer

Standard liquidation engines close the worst position first — the one with the largest loss. This is simple but suboptimal.

BULK Exchange runs a 100-cycle liquidation optimizer that does something different:

It evaluates each position’s margin impact before closing it. A position that provides hedging benefit — where closing it would increase the account’s risk exposure — is skipped.

Example: You are long BTC spot and short BTC perpetual (a funding arb position). If the liquidation engine closes your short BTC perp, you now have an unhedged long BTC position with even worse margin. The optimizer identifies this and skips the short.

The optimizer targets positions where closure produces the maximum margin recovery per unit of liquidation cost. It runs 100 evaluation cycles per liquidation event.

Practical result: Hedged portfolios are harder to liquidate into death spirals on BULK Exchange than on most other venues. The optimizer looks for the least destructive path to restoring margin health.

Liquidation Fees: What Most Exchanges Charge

Most perp DEXes and CEXes charge a liquidation fee of 0.1–0.5% of position size, taken at liquidation.

BULK Exchange charges no liquidation fee. The insurance fund absorbs shortfalls. This is stated explicitly in the architecture documentation: “No liquidation fee.”

For a $100,000 position, a 0.1% liquidation fee is $100 extracted at the worst possible moment. BULK’s zero-fee policy returns that to the trader.

How to Reduce Liquidation Risk

Use lower leverage. At 2x leverage, your liquidation price is 50% below entry. At 20x leverage, it is 5% below entry. The single most effective risk management decision.

Maintain a margin buffer. Do not use 100% of your available margin. Keeping 30–50% idle provides room to absorb mark price movements without triggering liquidation.

Set stop-losses above the liquidation price. A stop-loss at 8% below entry exits you at a controlled loss. A liquidation at 10% below entry exits you at a larger loss plus the emotional experience of forced closure. The stop-loss is strictly better.

Use isolated margin for high-risk positions. BULK Exchange supports isolated margin (i=true flag on any order). An isolated position can be liquidated without affecting your other positions or main account balance.

Monitor the mark price, not just last-traded price. Your liquidation is triggered by mark price. Watch the mark price feed, especially during volatile markets where last-traded price can temporarily diverge.

Liquidation vs ADL: The Difference

Liquidation: Your position is closed using the exchange’s normal matching engine. Other traders fill the other side. The insurance fund covers any residual shortfall.

Auto-Deleveraging (ADL): Only triggered when the insurance fund is exhausted. The exchange forcibly reduces the positions of the most profitable leveraged traders. On BULK Exchange, the ADL ranking score is PnL × leverage — the most profitable, most levered traders are deleveraged first. Described as “an exceptionally rare event.”

See Auto-Deleveraging (ADL) on BULK Exchange for the full breakdown.

Related Reading

• How BULK Exchange Liquidations Work
• Auto-Deleveraging (ADL)
• Portfolio Margin vs Isolated Margin
• BULK Exchange Margin Calculator
• What Are Perpetual Futures?
• Funding Rate Arbitrage Guide

Last updated May 28, 2026.