Liquidations

A position is liquidated when it can no longer meet its maintenance margin — that is, when account equity (collateral plus unrealized PnL) falls below the minimum the position is required to keep. Liquidation closes the at-risk position so that losses stay bounded by the collateral backing it.

When it happens

As a position moves against you, its unrealized loss reduces your account equity. While equity stays above maintenance margin, the position is healthy. Once equity drops to or below the maintenance margin requirement, the position becomes eligible for liquidation. Two levers most directly affect how close you are:

• Adverse price movement in the mark price of your position — the value used for all margin and liquidation math.
• Margin requirement changes — for example, the higher initial margin applied to RWA perps when the underlying market is closed (note that maintenance margin is not raised off-hours).

What happens to the position

Liquidation closes every position that shares the at-risk collateral, not just the one that crossed the threshold, and cancels the open orders on those positions. With isolated margin, only the isolated position and its own collateral are involved. How the positions are closed depends on how much equity is left when the liquidation engine acts. There are three outcomes, from mildest to most severe. The cushion is set per market (by default derived from its maintenance margin) and is not published as an API field. The goal of the system is to close risk in an orderly way and keep the exchange solvent, not to penalize beyond the collateral at stake.

Book close

The engine closes each position on the order book with an immediate-or-cancel order. The order’s limit price is set so that a fill at that price still leaves the cushion after the liquidation fee is paid. Fills at a better price leave you more. The liquidation fee is charged on the filled notional and paid to the insurance fund. Whatever equity remains after the close and the fee stays in your account. If the book is too thin to fill the whole position, the rest stays open and is retried as prices update.

Takeover

When equity has fallen below the cushion plus the fee (for example after a fast move between price updates), a book close can no longer leave the cushion intact. Instead, the liquidation engine takes over your positions directly, off the order book:

• The liquidation engine takes each position at a takeover discount: a price slightly worse than the mark price for you. That discount compensates for taking on a distressed position.
• The insurance fund settles the difference between your remaining equity and that discount. If your equity is larger than the discount, the excess goes to the insurance fund. If it is smaller, the insurance fund pays the shortfall so the full discount is still covered.

Either way, all of your remaining equity goes into the transfer, so after a full takeover your account balance for those positions is close to zero. No separate liquidation fee is charged, because the takeover already consumes everything that was left. This is why a takeover can leave you with nothing even though your account still showed some equity just before. If the insurance fund cannot cover the shortfall for a position, that position is not taken over. It stays open and is retried. If the liquidation engine cannot take over any of the positions, they are closed on the book as in a book close, and the liquidation fee applies.

Auto-deleverage (ADL)

When a fast move leaves equity negative, your losses are larger than your collateral and there is nothing left to transfer. Your positions are taken off the book: absorbed by the liquidation engine where it can, otherwise closed against traders holding opposing positions, starting with the most profitable and most leveraged. The insurance fund covers the shortfall first; only if it cannot cover all of it do the opposing traders absorb the remainder through a less favorable close price, never beyond their own collateral. Your collateral was already used up by the loss before the close, so it is gone. No liquidation fee is charged. If you hold the opposing side, ADL can reduce your profitable position without an order from you.

Walking through the outcomes

Take one long position whose price keeps falling. Which outcome applies depends only on where your equity sits, relative to three thresholds named by their role, at the moment the engine acts:

1. Equity above maintenance margin: the position is healthy and nothing happens.
2. Equity below maintenance margin, but still covering the cushion plus the liquidation fee → book close. The position is sold on the book and the liquidation fee is charged on the fills. You keep what is left after the fills and the fee, which is at least the cushion.
3. Equity below the cushion plus the liquidation fee, but not negative → takeover. The liquidation engine takes over the position at a takeover discount to mark. If your equity is more than the discount, the excess goes to the insurance fund; if it is less, the insurance fund pays the difference. Either way your account ends close to zero, with no liquidation fee.
4. Equity negative → ADL. Your collateral is already gone. The position is absorbed by the liquidation engine where it can, otherwise closed against opposing traders, and the shortfall is covered by the insurance fund (or by those traders if the fund cannot). You keep nothing, and no liquidation fee is charged.

A fast move can skip straight from step 1 to step 3 or 4, which is why the outcome depends on equity when the engine acts, not on where the price first crossed maintenance margin. These thresholds come from each market’s risk configuration and can change, so don’t rely on fixed values. Read live values from the API: maintenanceMarginFraction and liquidationFeePpm per market on GET /v1/markets, and your own equity and freeCollateral on GET /v1/account (accountEquity and freeCollateral on the account channel).

Seeing it in the API

• Your own forced-close leg arrives as a fill on the userFills channel and in GET /v1/fills, with a liquidation object whose method is LIQUIDATION, in all three outcomes. See Forced closures appear on the closed account’s own stream.
• On a book close, the fill’s fee is the normal taker fee plus the liquidation fee.
• On a takeover, your fill shows fee 0. The equity moved to or from the insurance fund shows up as a change in your account’s netQuoteBalance, on the account channel and in GET /v1/account.
• ADL closes charge no liquidation fee. If no counterparty can absorb the position right away, it is retried on the next price update, and the shortfall stays on your account until then.
• An opposing trader whose position is reduced by ADL gets a fill with liquidation.method ADL.
• On the account channel, each update carries netQuoteBalance, so you can see your balance after the close.

Liquidation fees

Liquidation fees are set per market and can change, so read the rate for each market from liquidationFeePpm on GET /v1/markets rather than deriving it. The value is in parts per million of fill notional: divide by 10,000 to get a percentage. For example, 10000 means 1%. A null value means the market charges no liquidation fee. The fee is charged only on a book close, never on a takeover or ADL. Liquidation fees flow to the insurance fund, which backstops the exchange when large market moves leave accounts with negative equity.

Off-hours protection

For perps on assets with set trading hours, Arcus applies price bands while the underlying market is closed. Trading and the mark price are constrained to a range around the last regular-hours price, and the range only widens gradually if sustained pressure builds against a bound. These bands are designed so that positions are not easily liquidated purely because of thin overnight or weekend liquidity. They give the market time to consolidate and limit how fast the mark price can move, but they do not prevent liquidation outright — a large or sustained off-hours move can still push a position past its maintenance margin. See Trading when the underlying is closed.

Staying clear of liquidation

• Keep a buffer of free collateral above your maintenance margin.
• Use reduce-only stop-loss orders to exit on your own terms before maintenance margin is breached.
• Remember that opening or increasing RWA positions off-hours costs more margin.
• Use isolated margin to contain a position’s risk to its own collateral rather than sharing it across your whole account.