Liquidations & insurance

What happens when an account falls below maintenance margin.

Liquidation flow (simplified)

1. Breach detected: Equity < MM Requirement.

2. Partial reduce: Liquidator/engine reduces position to restore health (priority on largest risk).

3. Full close: If partial fails, positions are closed at market until account > MM or position is flat.

4. Shortfall handling: Any residual shortfall is covered by Insurance; if insufficient, ADL (auto‑deleveraging) may apply as a last resort.

Margin calculations

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Insurance layers

• Primary: Fees & penalties directed to an insurance buffer.

• Secondary: Backstop liquidity mechanisms.

• Last resort: ADL targeting the most profitable opposing positions with transparent rules.

Liquidations are designed to be incremental where possible, to minimize market impact and protect healthy counterparties.

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Safety nets & waterfall

Layer	What it does	When it triggers
Primary engine	Attempts partial reductions to get back above MMR	On first breach
Full close	Closes the position entirely if partial fails	If reductions can’t restore maintenance
Liquidator Vault	Backstop that assumes remaining risk	If value < 2/3 × MMR
Insurance buffer	Covers residual shortfalls	After closeout, if needed
ADL (last resort)	De-risks by reducing PnL-rich opposing positions	Only if insurance insufficient

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What the trader sees

• Real-time health in the position panel (margin buffer vs. maintenance).

• Automatic reductions/closures if thresholds are hit.

• Remaining collateral (if any) returns to the trader post-closeout.

• No extra liquidation penalty charged by Trove.