Liquidation and Margin Requirements

Trading with leverage means you are borrowing funds to amplify your position size. While this offers the potential for higher profits, it also means that if the market goes against you, your losses accumulate faster relative to your collateral. To protect traders from going into negative balances and to protect the platform’s liquidity, OrbDex enforces a liquidation mechanism.

• Margin and Liquidation Basics: - When you open a leveraged position, a certain amount of your collateral is allocated as Initial Margin for that position. For example, if you open a $10,000 position with 10× leverage, you put up $1,000 as margin. - OrbDex will have a required Maintenance Margin, a minimum amount of collateral you must maintain per position (often expressed as a percentage of position size, e.g. 5%). If your equity (collateral plus unrealized PnL) in the position falls below this maintenance level, the position is in danger of liquidation. - Liquidation is the forced closing of a position by the system when the trader’s collateral can no longer sustain the losses. This happens when the market moves against your position beyond a certain point (the Liquidation Price).

• Liquidation Process: - If the market price hits your position’s liquidation price (or the margin ratio hits 100%), OrbDex will automatically close your position at the best available price. Essentially, the platform will execute a market order to exit your position completely. - A Liquidation Fee may be charged. Typically, a small percentage of the remaining collateral is taken as a fee and given as a reward to the liquidator (which could be a third-party or a system mechanism). The purpose is to incentivize maintaining system stability. - After liquidation, if there is any collateral left after covering the position’s loss and fees, it will be returned to your available balance. However, liquidations often result in most of the margin being lost. Avoiding liquidation is crucial, as it’s usually far more costly than manually closing a losing position early.

• How to Avoid Liquidation: - Always use stop-loss orders to exit trades before reaching the liquidation point. A stop-loss set above the liquidation price (for shorts) or below it (for longs) can prevent the worst-case scenario by closing the position while some collateral remains. - Monitor your Margin Level. If your margin level is steadily dropping toward the danger zone, you have options:

-Reduce the position size: You can manually close part of the position to lower the margin requirement. - Add collateral: If OrbDex allows, you can deposit additional collateral to your account or transfer extra funds to that position (some platforms have a feature to add margin to a specific position). Increasing collateral will push the liquidation price further away. - Avoid using maximum leverage on highly volatile assets, as even a small adverse price swing can trigger liquidation. Consider a more moderate leverage so you have a buffer. - Keep an eye on market volatility and major news events. Volatility can cause rapid price movements. If you suspect a big move (especially against your position), you might close or reduce your position preemptively

In summary, liquidation happens when losses approach the amount of margin you put up. OrbDex’s design is to automatically liquidate positions to prevent traders from ending up with a negative balance. By practicing good risk management and always using stops, you can greatly reduce the chance of being liquidated.