Risk & Liquidations
Risk & Liquidations
Perpetual contract trading involves leverage, which amplifies both potential gains and potential losses.
When losses exceed the margin available to support a position, liquidation may occur.
Understanding liquidation mechanics is critical to managing trading risk on 6MM.
What Is Liquidation?
Liquidation happens when the margin balance of a position falls below the maintenance margin requirement.
When this occurs:
- The system forcefully closes the position
- The goal is to prevent further losses and protect system stability
Liquidation is a risk management mechanism, not a penalty.
What Causes Liquidation?
Liquidation may occur due to:
- Adverse price movement
- Excessive leverage
- Insufficient available margin
- Accumulated fees or funding payments
High leverage significantly increases liquidation risk.
Mark Price–Based Liquidation
6MM uses the mark price, not the last traded price, to determine liquidation.
This helps:
- Reduce liquidations caused by short-term price spikes
- Improve fairness during volatile market conditions
The mark price reflects a more stable market reference.
Liquidation Process
When risk increases, the system may follow these steps:
- Margin ratio rises as unrealized losses increase
- Risk warnings may be triggered (if supported)
- Partial position reduction may occur
- Full liquidation is executed if risk continues to escalate
Exact behavior depends on partner configuration.
What Happens After Liquidation?
After liquidation:
- The position is closed
- Remaining margin (if any) is returned to the Perpetual Account
- Trading fees and losses are deducted
In extreme market conditions, additional risk mechanisms may apply.
How to Reduce Liquidation Risk
- Use lower leverage
- Maintain sufficient available margin
- Set Stop Loss orders early
- Monitor margin ratio regularly
- Avoid trading during extreme volatility
Risk management is more important than trade frequency.
Liquidation vs. Stop Loss
Stop Loss helps prevent liquidation, but cannot fully eliminate risk.
Summary
On 6MM:
- Liquidation protects both users and the system
- Risk is managed in real time using mark price and margin rules
- Responsible leverage use is essential
Understanding liquidation mechanics is a key step toward safe and sustainable perpetual trading.