A liquidation happens when an account's equity falls below its maintenance margin. Nexwest first tries to close the position in the public order book. If the book cannot absorb it, the backstop vault takes over.
The sequence
- Risk check. Every block recomputes account equity against maintenance margin using mark price.
- Book liquidation. The engine sends a market order for the position. The order can fill partially or fully.
- Cooldown. If the account remains below maintenance, a 30-second cooldown prevents repeated partial liquidations.
- Backstop. If equity falls below two-thirds of maintenance margin, the liquidator vault takes over the remaining position and margin.
Maintenance margin is not returned on backstop
When the backstop vault takes over, the maintenance margin is not returned to the trader. This buffer keeps backstop liquidations profitable on average. Close the position or use a stop before the mark reaches the liquidation price.
Partial liquidations
For positions larger than 100,000 USDC (10,000 USDC on testnet), only 20% of the position is sent to the book at a time. This reduces market impact and gives the trader a chance to add margin.
After a partial liquidation, the account enters a 30-second cooldown. During the cooldown, any further liquidation order is for the entire remaining position.
Liquidation price
For an isolated position:
liquidation_price ≈ entry_price × (1 - 1/leverage + maintenance_rate) (long)
liquidation_price ≈ entry_price × (1 + 1/leverage - maintenance_rate) (short)For a cross account, the liquidation price depends on every position, the USDC balance, and unrealized PnL. The API returns an estimated price in assetPositions[].liquidationPx; it updates with mark price and funding.
Mark price, not last price
Liquidations use the mark price, which combines the order book with external oracle prices. A thin wick in the book does not liquidate an otherwise healthy account.
The liquidator vault
The backstop vault is a community-owned strategy that absorbs positions below two-thirds of maintenance margin. Its PnL accrues to vault depositors. Nexwest does not operate a privileged liquidation desk.
You can deposit into the vault from the Vaults page. See vaults.
Avoiding liquidation
- Use a stop loss or trailing stop.
- Keep leverage below the maximum, especially in volatile markets.
- Monitor the liquidation price after funding payments; it moves.
- Add margin to isolated positions before the buffer is exhausted.
- Avoid holding a cross account with a single large position and no free collateral.