Liquidation occurs when your position no longer meets margin requirements. This usually means your collateral is too low to support your open position as prices are moving in the opposite direction of your position.

Liquidation can be partial or full. When your margin balance falls below the margin maintenance requirement (10% of the position’s notional value), your position could be partially liquidated. If margin breaches the close-out margin requirement (5% of the position’s notional value), it could be fully liquidated. Liquidations are enforced by a partner venue that also manages order execution.

To help you understand your liquidation risk, you’ll see these key metrics:

• Initial Margin Ratio (IMR) and Maintenance Margin Ratio (MMR): These percentages indicate the health of your position based on your margin relative to the position value. They are visible in the expanded view of your open position on the Perpetuals page or perpetuals details page. The initial margin ratio compares the ratio of the initial margin floor to the account margin (which includes current position margin and unrealized P&L). The maintenance margin ratio compares the ratio of the position maintenance margin floor to the account margin (which includes current position margin and unrealized P&L).
  • The initial margin floor is calculated as 20% of the position value and will change every 15-minute settlement window according to the settled price of the perpetual.
  • The maintenance margin floor is calculated as 10% of the position value and will similarly change every 15-minute settlement window according to the settled price of the perpetual.
• Liquidation price: This is the estimated price at which your position may be partially or fully liquidated if the market moves unfavorably. You can see your estimated liquidation price on the Perpetuals page and perpetuals details pages. The liquidation price is automatically updated as the perpetual market price moves, as the EUR to USD FX rate changes, when you increase or decrease margin, or when a settlement occurs. It is important to monitor your liquidation price to gauge the risk level.

Robinhood aims to be transparent about margin health and provides information about your position's risk level:

1. Medium risk (80% < IMR < 100% or 80% < MMR < 100%): Your position is at risk. The liquidation price will be yellow. At this stage, you can tap the indicator for more information about managing your position to decrease liquidation risk.
2. High risk (MMR > 80%): Your position is at risk of liquidation or position trading restrictions. The liquidation price will be red. If your IMR exceeds 100%, you will not be able to enter new orders that increase your position exposure. Additionally, any open orders that increase position exposure are canceled.
3. During liquidation (MMR > 100%): You will see that you have been either partially or fully liquidated. You are restricted from trading this perpetual position until the liquidation is complete.
4. Post liquidation (IMR < 100%): Once the partner venue who manages liquidations liquidates the position enough until the position IMR < 100%, the position is considered healthy again. You will be able to resume normal perpetuals trading.

When liquidation is triggered (MMR > 100%), our partner venue begins a process to close part or all of your position. The partner venue will first try to partially liquidate your position if the close out margin requirement is not breached or if the order size is > €100. If close out margin is breached or if the order size is < €100, the position will be fully liquidated. This process follows a waterfall schedule:

1. Position liquidation: The partner venue attempts to close the position. Liquidation orders are represented in your history detail with statuses and may have a partially-filled status until the liquidation is complete. There may be several liquidation orders required by the partner venue to complete a liquidation. Most liquidations are able to be completed at this point. If the partner venue cannot liquidate your position due to insufficient venue liquidity, it will be assigned to a market maker partaking in the partner venue’s assignment program to handle the liquidation.
2. Insurance fund: In the extremely rare case that a position cannot be liquidated normally or through the assignment program, the partner venue uses an insurance fund to cover shortfalls from liquidations.In extremely rare circumstances, if the partner venue cannot liquidate positions in an orderly process through the order book or the assignment program, further liquidation state actions may be taken:
3. Auto-deleveraging (ADL): The partner venue may liquidate positions of profitable traders to cover losses from positions that couldn't be fully wound down through the normal liquidation process, assignment program, or the insurance fund. If an ADL is declared by the partner venue, only traders with unsettled P&L in the same 15-minute trading window as the ADL are at risk. Traders with greater unsettled PNL and higher position leverage are at a greater risk of ADL. Realized position PNL and margin is not ever at risk of being clawed back.
4. Socialized losses: If the ADL process still results in a shortfall, the partner venue will spread losses proportionally among all profitable traders during the 15-minute settlement window. Unsettled P&L of all traders will be clawed back across all perpetuals contracts.
5. Automatic platform-wide contract closure: In the event that liquidations still cannot be fully processed by the partner venue, the partner venue may halt trading for a specific market until liquidations can be processed across their books. At this point, open positions and orders are canceled automatically by the partner venue and the order book is wound down.

If your position is liquidated, you will incur fees:

• Liquidation fee: The partner venue charges 5 basis points (0.05%) of the total notional liquidated for full or partial liquidations. Robinhood does not capture this fee.

Robinhood offers tools to help you manage the risk of liquidation:

• Risk alerts: You will see alerts when you are at risk for liquidation.
• Take profit (TP) and stop loss (SL) orders: You can set TP/SL levels to automatically close your position if it reaches a certain price, helping to manage potential losses or lock in gains.
• Add margin: You can add margin to your position to improve its margin health and move the liquidation price further away from the current market price.
• Close position: You can choose to close your position manually at any time (if there are no restrictions in place due to insufficient margin) to prevent liquidation. You can do this by entering a position size with the opposite direction of your current position (e.g., if you are long 1 BTC, you can go short 1 BTC to close it). This can also be done from the Perpetuals page or perpetuals detail pages.

It is important to monitor your positions regularly, particularly your IMR and MMR, and the estimated liquidation price, and stay aware of market volatility. You can learn more about how perpetuals work and the ways to manage risk through our in-app education lesson.

Robinhood Europe, UAB (“RHEU”) (company code: 306377915) is authorized and regulated by the Bank of Lithuania (“BoL”) as a financial brokerage firm and a crypto-asset service provider. RHEU’s registered address is: Mėsinių 5, LT-01133 Vilnius, Lithuania; address for correspondence: Konstitucijos pr, 21A (QUADRUM East), LT-08130, Vilnius, Lithuania; website.