Liquidity Providers
The liquidation process on Everstrike may fail for a number of reasons:
- Liquidity Issues. There may be not be enough liquidity in the market to close out 10% of the position.
- Fast Moving Market. A rapid movement in the Mark Price may bankrupt the position before the Liquidation engine can do its job.
In case the liquidation process fails, the position will be transferred to a Liquidity Provider.
Liquidity Providers are traders that take over positions that failed the liquidation process. They all have a high amount of margin deposited with Everstrike, decreasing the chance of them entering liquidation themselves. Anyone with access to a sufficient amount of capital can become a Liquidity Provider.
A Liquidity Provider will take over a position if the Mark Price reaches the Failure Price of the position. The position will be taken over at the Bankruptcy Price. This gives the Liquidity Provider some time to hedge his exposure, before the Mark Price potentially goes beyond the Bankruptcy Price (at which point he will be in a loss).
The Bankruptcy Price
The Bankruptcy Price is defined as the price at which the position goes bankrupt. At this price, the Gross Position Margin on the position is zero.
The Liquidation Price
The Liquidation Price is defined as the price at which the position enters liquidation. At this price, the Gross Position Margin on the position has just fallen below the Minimum Maintenance Margin requirements.
The Failure Price
The Failure Price is defined as the price at which liquidation fails, and the position is transferred to a liquidity provider. At this price, the Gross Position Margin is 50% of the Minimum Maintenance Margin requirements.
For long positions, the liquidation process will start once the Mark Price drops below the Liquidation Price. The position will exit liquidation once one of the following conditions is true:
- The Mark Price goes above the Liquidation Price. In this case, the position exits liquidation, and control of the position is returned to the trader.
- The Mark Price drops below the Failure Price. In this case, the liquidation is considered as having failed, and the position will be transferred to a Liquidity Provider.
For short positions, the situation is the opposite.
Note For Cross Margin Users
In Cross Margin mode, the Gross Position Margin on each individual position is handled automatically by the risk management system. Positions will only begin to enter liquidation if the account-wide Gross Position Margin drops below the account-wide Minimum Maintenance Margin. More info on this is available in the article on Liquidation.
Last modified 2mo ago