# Liquidation

#### What is Liquidation

Liquidation occurs when the account balance (initial margin + unrealised PnL) drops below the maintenance margin requirement. The key factors affecting liquidation include:

* Mark Price Movement – If the mark price moves unfavourably, unrealised losses will increase, reducing the trader's margin balance.
* Leverage Impact: Higher leverage reduces the initial margin required but increases liquidation risk, as small price movements can quickly deplete the margin.

#### Liquidation Calculation Formula:

For Long positions:

> **Liquidation Price (Long) = Asset Price × (1−Initial Margin Ratio)/(1−Maintenance Margin Ratio)**

For Short positions:

> **Liquidation Price (Short) = Asset Price × (1+Initial Margin Ratio)/(1+Maintenance Margin Ratio)**

####  Example of Liquidation Trigger

* Asset price: $7
* Quantity: 35.71 APT
* Notional Value: $250
* Leverage: 10x
* Initial Margin Used: $25
* Initial Margin Ratio: 1 / 10 = 0.1
* Maintenance Margin Ratio: 0.025 (i.e. 2.5%)

Liquidation price for Long position -> L = 7×(1−0.025)/(1−0.1)​ = 7 × 0.975 / 0.9 = 6.461

Meaning, the liquidation price for long position is at $6.46 

\
Liquidation price for Short position -> S = 7×(1+0.025)/(1+0.1) = 7​ × 1.1 / 1.025 = =7.512

​ Meaning, the liquidation price for short position is at $7.51 

{% hint style="info" %}
Did you know that you get 50% of the remaining margin amount as refund when your trades get liquidated. For more details regarding how this works check out -> <https://docs.kanalabs.io/perpetual-futures/kana-perps/technical-architecture#liquidation-logic>
{% endhint %}

#### Preventing Liquidation

To avoid liquidation, traders should:

* Regularly monitor their margin balance and unrealised PnL.
* Add more collateral before the margin balance drops below the maintenance requirement.
* Use lower leverage to reduce liquidation risk.
* Set stop-loss orders to manage risk proactively.

Actively managing margin levels and monitoring price fluctuations can help traders avoid liquidation and control their positions. Adding collateral when necessary is also recommended to prevent forced liquidation.<br>


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