How liquidation works in perpetual futures

Liquidation is the forced reduction or closure of a leveraged position when the collateral supporting it no longer meets the venue's risk requirements. It can begin while an account still has positive value. The remaining collateral is a buffer for closing risk, not a promise that the position can stay open until that collateral reaches zero.

To understand liquidation, separate three things: the size of the position, the equity supporting it, and the minimum margin required to keep it open.

What triggers liquidation?

Position size determines how much a price move changes profit or loss. Account equity reflects the collateral and the gains, losses, liabilities, and other adjustments recognized by the venue. Maintenance margin is the minimum support required for the risk being carried.

In a simple single-position model, liquidation becomes possible when equity falls to the maintenance requirement. Real venues may use account-wide ratios, collateral discounts, market-specific risk parameters, and separate thresholds for canceling orders or reducing positions.

Initial margin and maintenance margin serve different purposes. Initial margin governs opening or increasing risk. Maintenance margin governs whether existing risk can remain. Passing the entry check does not mean the account will stay healthy after prices or balances change.

A simplified example: losses use up the margin buffer

Suppose an otherwise empty account opens a linear long position of 0.10 BTC at $100,000, with $2,000 of cash collateral. Entry notional is $10,000, so initial exposure is five times the collateral.

For this teaching example only, assume maintenance margin is 5% of current position notional. Ignore fees, funding, collateral discounts, other positions, and any separate order-cancellation threshold. These are hypothetical rules, not an N1 liquidation calculator.

At $85,000, equity still exceeds this model's requirement. At $84,000, it does not. The position crosses the threshold even though the account still has $400 of equity.

For these assumptions, the equality is $2,000 + 0.10 × (price − $100,000) = 5% × 0.10 × price. It occurs at approximately $84,211, before execution costs. Actual liquidation fills can occur at different prices from the threshold.

This also shows why “5x leverage means a 20% move before liquidation” is unreliable. A 20% adverse move would exhaust the starting equity before costs, but maintenance requirements can force action sooner. On a short, a rising price creates the loss instead.

Cross margin makes account health the relevant measure

With isolated margin, a position's assigned collateral is separated according to the venue's rules. With cross margin, multiple positions share support within an account. A loss in one market can reduce the margin available for another.

Holding several positions does not automatically diversify that risk. They can lose value together, and collateral itself can fall in value if it is a volatile asset. Funding payments and fees can also reduce the remaining buffer. Adding collateral may improve margin headroom, but it commits more funds to the account and does not remove the position's risk.

Read cross margin vs isolated margin for the collateral arrangements and funding rates explained for holding costs.

On N1, subaccounts have independent balances, positions, and risk. Liquidation is evaluated per account; collateral in another subaccount does not automatically support the account under stress.

Which price matters?

The last trade, the mark price, and the index price can be different. A chart showing one of them may not show the reference used by the risk engine.

N1's price documentation specifies the index price for margin calculations and liquidations. Its mark price is used for displayed unrealized trading P&L and the funding premium. Do not assume that a mark-price rule described by another venue applies to N1.

A displayed liquidation estimate also depends on its assumptions. Other positions, collateral values, funding, and account changes can move the threshold even if one position's entry price stays fixed.

What happens during liquidation on N1?

N1's margin rules distinguish the threshold for canceling risk-increasing open orders from the maintenance threshold for liquidating positions and borrows.

The documented liquidation process can cancel orders, reduce perpetual positions, and trade balances to address liabilities. The engine determines the intended perpetual reduction from the current risk state; available order-book depth constrains what can actually fill.

If those actions cannot restore health, the process can progress to an account-wide backstop transfer or bankruptcy handling. Liquidation may reduce a position rather than close everything in one step, but there is no promise that a particular position or balance will survive. Execution and applicable fees affect the outcome.

A stop loss is an instruction, not liquidation protection

A stop loss attempts an exit after its trigger condition is met. Liquidation is imposed by the venue's risk system. They are separate processes.

On N1, take-profit and stop-loss orders activate from the index price and attempt to reduce or close the position. Activation does not guarantee a fill: liquidity, an optional limit price, and market state still matter.

A fast price gap can move through a stop trigger and toward the liquidation threshold before an exit completes. A stop-limit can activate but remain unfilled outside its limit. Treat a stop as part of an exit plan, not as a guaranteed cap on loss.

Questions to answer before opening a position

Identify the total exposure and which collateral supports it. Check the reference price and maintenance rules, consider how other positions affect the same account, and understand the conditions under which an exit could fail. Monitor account health as well as the position's displayed P&L.

Can liquidation happen before I lose all my collateral?

Yes. Maintenance requirements exist so risk can be reduced before equity is exhausted. Costs and execution conditions determine the amount, if any, that remains afterward.

Can I be liquidated even if I plan to hold long term?

Yes. A perpetual has no scheduled expiry, but it still requires ongoing margin support. An eventual price recovery does not restore a position that was already closed.

Is fully paid spot subject to the same liquidation risk?

A standalone, fully paid spot holding has no margin liquidation. If assets are borrowed or used as collateral for other obligations, the account can face different risks. See spot vs perpetual futures for that distinction.