Liquidations and ADL

Parcl liquidates an account when its equity falls below its maintenance-margin requirement. Cross and isolated positions use the same liquidation waterfall. Only the scope changes:

Other isolated positions and cross collateral do not cover an isolated position's losses.

When liquidation starts

The engine checks liquidations at the end of each block. It values positions at their liquidation reference price, which is the oracle price for real estate markets.

account_value = collateral + sum(unrealized PnL)

maintenance_margin_required = sum(position maintenance margin)

Liquidation starts when:

account_value < maintenance_margin_required

For an isolated position, collateral means that position's bucket. Margin rates can vary by market and position size. See the market specification table for current values.

How it works

Liquidation follows one ordered waterfall:

1. Cancel orders. The engine cancels orders within the liquidation scope, then checks the account again.
2. Try the order book. For an account that is below maintenance margin but not severely underwater, the engine submits IOC closes against the live book. It closes only enough exposure to restore maintenance margin and checks the account again after each fill. Large positions can close in several passes to limit market impact.
3. Use the Liquidator Vault. The remaining position moves to the market's Liquidator Vault when the book cannot fill it within the bankruptcy-price bound. An account that is already severely underwater goes directly to this stage.
4. Run auto-deleveraging. If the Liquidator Vault cannot take the complete position, auto-deleveraging (ADL) closes the residual against profitable opposing traders.
5. Settle any terminal residual. A position left after ADL moves to the Parcl Treasury.

This waterfall is identical for cross and isolated positions. Cross mode runs it over the account's cross portfolio. Isolated mode runs it over one position and its bucket.

Order-book liquidation fills use the account's ordinary taker fee and give the maker its ordinary fee or rebate. There is no separate liquidation penalty. An off-book transfer to the Liquidator Vault does not charge a trading fee.

Bankruptcy price

The bankruptcy price is the price at which a position's loss consumes the collateral available to that liquidation estate. It is a fill-price boundary, not the price that triggers liquidation.

For one position, before accounting for the taker fee:

long bankruptcy price  = entry price - available collateral / size
short bankruptcy price = entry price + available collateral / size

For cross margin, the engine allocates the account's available collateral across its cross positions before calculating each bound. For isolated margin, the available collateral is the position's bucket. The engine folds the taker fee into the exact bound used for order-book fills.

The liquidation engine does not execute a book fill beyond this price. If no eligible liquidity is available within the bound, the position continues to the Liquidator Vault.

The bankruptcy price differs from the liquidation price:

• Liquidation price: the account first falls below maintenance margin.
• Bankruptcy price: the available collateral is exhausted.

Partial liquidation

The engine normally closes only enough exposure to restore maintenance margin. It can work a large position down over several passes. An account that is already severely underwater skips partial book liquidation and proceeds to the Liquidator Vault.

Isolated-margin outcome

An isolated liquidation can consume only its own bucket. A successful book close returns any remaining bucket collateral to the account's cross balance. If the book cannot complete the close, the residual follows the same Liquidator Vault, ADL, and Treasury stages as a cross liquidation. Other isolated buckets and cross collateral remain separate.

A voluntary isolated close is rejected when its worst-case fill would create a bucket deficit. Use a tighter limit or allow the liquidation waterfall to close the position.

Auto-deleveraging

ADL runs only when the Liquidator Vault cannot absorb the complete residual position. It matches that residual with profitable positions on the opposite side.

The engine ranks eligible counterparties by profit ratio. It closes both sides at one price, bounded so the selected counterparty does not realize a loss. An ADL target can give up positive unrealized PnL on the closed portion, down to break-even, but ADL does not turn that forced close into a realized loss.

Events and state

Subscribe to the WebSocket liquidations channel for liquidation summaries. The general events stream also reports Liquidator Vault and ADL activity. Read the market's current backstop account from backstopAccountId in GET /v1/markets.

See Margin for margin-mode behavior and Mark price for liquidation reference prices.