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What Is a Liquidation Engine? How Forced Closures Work in Perps

A liquidation engine is the automated system on a perpetual futures exchange that continuously monitors every open position and forcibly closes trades when a trader's margin drops below the maintenance margin requirement. It prevents individual losses from creating bad debt for the exchange.

How It Works​

The engine runs in a loop: it calculates each position's margin ratio, compares it to the maintenance threshold, and triggers closure when the ratio falls too low. Most modern engines use mark price (a manipulation-resistant fair price) rather than the last traded price to determine when to liquidate.

Partial vs Full Liquidation​

  • Partial liquidation closes only a portion of your position to restore the margin ratio above maintenance — preserving part of your trade and reducing market impact.
  • Full liquidation closes the entire position when partial closure is insufficient or the market moves too quickly.

Liquidation fees are deducted from remaining margin and typically go to the exchange's insurance fund.

For a detailed walkthrough — including how cascading liquidations work, maintenance margin tiers, and strategies to avoid triggering the engine — see How Liquidation Works.