Liquidation (Perp Dex)

The forced closure of a leveraged position when margin falls below the required level.

What is Liquidation (Perp Dex)?

Liquidation occurs when a trader’s margin balance on a Perp DEX falls below the maintenance margin requirement due to adverse price movements, prompting the protocol to automatically close the position to prevent further losses. For example, on GMX, if a trader’s 20x leveraged position loses enough value that their margin cannot cover the loss, the smart contract liquidates the position at the mark price, with remaining funds returned to the trader.

Liquidation protects the platform’s liquidity pool and other traders from absorbing losses. Some Perp DEXs, like Hyperliquid, use an insurance fund to cover any shortfall if liquidation cannot be executed profitably. Traders can avoid liquidation by monitoring positions, adding margin, or using lower leverage to reduce risk.