# Liquidation

When your account falls below margin requirements, a few automated steps kick in to protect the system and limit further losses. Liquidation is handled in a clear order, and most of it happens automatically behind the scenes. Here’s how it works:

## Liquidation Process

### 1. Initial Margin Breach: Orders Are Cancelled

If your margin balance drops below the **initial margin** requirement, your open orders that increase risk will be **force cancelled**. You’re still allowed to:

* Close out positions
* Place risk-reducing orders
* Repay borrowed assets

But you can’t place new risk-increasing orders or borrow more while under this threshold.

### 2. Maintenance Margin Breach: Positions Are Liquidated

If your margin balance falls below the **maintenance margin** requirement, your account is now eligible for liquidation. The system will:

* Cancel all remaining orders
* Begin selling off your open positions as **market orders** on the orderbook

If this is enough to restore your margin health, the process stops there and the user retains any remaining collateral.

### 3. Backstop Liquidations

If your account continues to deteriorate — meaning liquidation via the orderbook fails and your equity drops too low — a **backstop liquidator vault** steps in. This vault takes over the position at a worst-case price (known as the **bankruptcy price**) and receives a reward for doing so. In this way, liquidations are democratized for the community, allowing them to earn a share of the liquidation rewards.

This final step ensures that the system remains solvent and that losses are contained, even in volatile conditions.