Liquidation

Bullet employs multiple lines of defence to mitigate risk and bad debt from accruing.

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.