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Health ratio

Each active price position has a health ratio. A lower health ratio means the position is closer to liquidation. Health changes when the oracle price changes, when psi changes, when pool state changes, or — on markets that enable funding — as funding accrues against your position. It can move even if you do not submit a transaction.

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Liquidation threshold

A position becomes liquidatable when its health ratio falls below the market’s liquidation threshold (strictly below — a health ratio exactly at the threshold is not liquidatable). When this happens, any keeper or user can call the liquidation function. A close fee is taken out first, the liquidator’s incentive is paid out directly, and the remaining adjusted value is held in the pool’s settlement escrow for the position owner to claim with a separate claimSettlement transaction (the same as a normal close). A liquidation pays the same close fee a voluntary close pays, carved out of your position’s remaining adjusted value before anything else — so an owner cannot self-liquidate to dodge it. The liquidator’s incentive is then a share of what is left after that fee (5% by default, configurable up to 50%), taken out of the value rather than charged on top, and whatever remains is escrowed for you. The total paid out is capped by the pool’s available collateral. Cross-margin positions are not liquidated through the pool this way. They are liquidated at the account level through your margin account, where your whole account’s equity is checked against its maintenance requirement. Liquidation also depends on a readable oracle price. It stays available when a scheduled market is closed (settling against the oracle’s frozen price), but it reverts while the price itself is unreadable (for example during a sequencer outage and its restart grace period on an L2 market).

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You cannot lose more than collateral

Position raw value is floored at zero. This means a trader cannot owe more than the deposited collateral through the position. However, being floored at zero does not protect you from losing the entire position value.

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Liquidation price is an estimate

The displayed liquidation price is an approximation based on current parameters. It can change as oracle price, psi, pool collateral, and exposure change. Do not treat it as a guaranteed execution boundary. For some low-leverage long positions, the contract may show no positive liquidation price from the standard formula. That does not remove other risks, such as fees, psi changes, pool state changes, or full loss of deposited collateral.

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How to reduce liquidation risk

  • Use lower leverage.
  • Keep enough wallet balance for gas and required oracle update fees.
  • Monitor health ratio, not only mark P&L.
  • Close or reduce exposure before the position becomes liquidatable.
See also Price market risks and the Glossary.