Liquidations

A liquidation event happens when a trader's positions move against them, causing their account balance to fall below the required maintenance margin.

When the account balance dips below the maintenance margin, the system places market orders to partially close the position and bring the balance back above the maintenance margin. Any remaining collateral is returned to the trader, and the liquidation price is updated to reflect the change.

However, if the market moves so unfavorably that the account balance turns negative, the insurance fund steps in. It covers the difference once the position is fully closed, ensuring that the trader doesn’t owe more than their balance.

Instead of seizing funds from liquidations, Hibachi only charges a small liquidation fee, aligning the platform with users and inhibiting incentives to have the user liquidated. This fee is solely used to grow the insurance fund and ensure the exchange's solvency.

After opening a trader, traders are shown an estimated liquidation price. This estimate can change due to fluctuations in order book depth. Once the position is open, a more accurate liquidation price is calculated, but it can still vary because of factors like funding payments or unrealized PnL.