# Liquidations

Liquidations are a critical mechanism designed to preserve market integrity and reduce systemic risk. A liquidation event is triggered when a trader's position no longer holds sufficient collateral to meet the platform's required maintenance margin. Specifically, the remaining collateral is determined by taking the initial collateral placed to open the position and adjusting it for any fees incurred and the unrealized profit or loss (PnL) of the position.

The maintenance margin is a safety buffer, ensuring that there is always enough collateral to cover potential losses in a position. On LogX, this buffer is quantified as 2.5% of the total position size. If market volatility or trading losses decrease a position's collateral below this critical threshold, the platform initiates a liquidation process to close the position, thereby mitigating the risk of the collateral becoming insufficient to cover the position's losses.

This liquidation protocol is instrumental in upholding the financial stability of LogX by preventing scenarios where massive, unfunded liabilities accumulate, which could threaten the solvency and smooth functioning of the exchange. For traders, understanding this mechanism is crucial to manage risk effectively and to strategize their trading activities within the risk parameters set by the exchange.\
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Certainly! Let's walk through a mathematical example to illustrate how liquidation works on LogX, especially when a trader uses 10x leverage.

### Mathematical Example

#### Initial Setup

* **Initial Margin Requirement (IMR):** This is the initial amount required to open a position. With 10x leverage, the IMR is 10% of the position size.
* **Maintenance Margin Requirement (MMR):** On LogX, this is set at 2.5% of the position size.
* **Initial Collateral (IC):** The amount deposited by the trader to open the leveraged position.
* **Position Size (PS):** The total value of the position opened with leverage.

#### Scenario:

A trader decides to open a long position in an asset with the following details:

* **Initial Collateral (IC):** $1,000
* **Leverage:** 10x
* This means the Position Size (PS) = IC x Leverage = $1,000 x 10 = $10,000.

#### Liquidation Mechanics:

1. **Initial Margin (IM):** With 10x leverage, the initial margin is 10%, so for a $10,000 position, the IM is $1,000 (which is the trader's initial collateral).
2. **Maintenance Margin (MM):** The MMR on LogX is 2.5% of the position size. Thus, MM = 2.5% of $10,000 = $250.
3. **Liquidation Trigger:** The position will face liquidation if the remaining collateral falls below the MM. Since the remaining collateral is the initial collateral adjusted for P\&L, we calculate it as follows:
   * If the position loses value, the loss reduces the remaining collateral.
   * For a long position, if the asset's price drops, the P\&L becomes negative, affecting the remaining collateral.
4. **Example of a Price Drop:** Suppose the asset's price drops such that the position's value decreases by 7.5%. The loss on the position would be 7.5% of $10,000 = $750.
5. **Remaining Collateral (RC):** Post-loss, the RC = IC - Loss = $1,000 - $750 = $250.
6. **Comparison with MMR:** At this point, the RC ($250) is equal to the MM ($250). Any further drop in the asset's value will push the RC below the MM, triggering a liquidation.

#### Conclusion:

In this scenario, a 7.5% drop in the asset's value leads the trader's position to be at the brink of liquidation. Any additional loss would result in the remaining collateral falling below the maintenance margin of $250, thereby initiating liquidation to prevent further losses and secure the platform from potential defaults.
