We have covered Liquidation process in another guide. Now we will use an example to explain the process.
A trader has a 160 BTC open position value and 50 BTC Active Order value. On DueDEX, his risk limit falls into the third tier-200 BTC. Now the mark price has reached his liquidation price.
As the first step, the system will cancel all Active orders. Now, the risk limit will be reduced to the second tier at 150 BTC. Along with the reducing Risk Limit, the maintenance margin reduces too to avoid liquidation.
Then the Mark Price changes again and hits the new liquidation price.
1. The liquidation engine will close 60 BTC value of position to further reduce to the Risk Limit to the first tier-100 BTC. Similarly, the maintenance margin reduces again to avoid liquidation.
2. If the first step is not enough to avoid liquidation, it is already the lowest risk limit. The entire position will be taken over by the liquidation engine at its bankrupt price.