To determine if a position is eligible for liquidation, GTE checks the following condition:

(margin + sPnL − pendingFundingPayment)<minMarginRequirement(margin \ + \ sPnL \ - \ pendingFundingPayment) < minMarginRequirement

Where:

  • margin: The collateral allocated to the position.
  • simualated PnL (sPnL): The simulated PnL based on index pricing. We want to avoid using order book liquidity here as it’s too volatile and is prone to gaming. We will start with index pricing and implement sPnL using average bid/ask impact shortly after.
  • pendingFundingPayment: The next scheduled funding cost the position must pay (or funding credit if negative).
  • minMarginRequirement: Calculated as minMarginBps * currentNotional / 10000.
  • currentNotional: The position’s size (base units) multiplied by the current index price.

If the above condition is true, the system flags the position for liquidation.

When a user enters a trade, we compute and display a liquidation price. As per usual, this price may not be the fully accurate liquidation price as there may be changes in unrealized PnL in other positions (for cross margin) or due to funding payments. The liquidation formula is standard and works as follows:

priceliquidation=price −(side ∗marginAvailable)positionSize ∗(1 −maintenanceReciprocal ∗side)price_{liquidation} = price \ - \frac{(side\ * marginAvailable)}{positionSize\ * (1\ - maintenanceReciprocal\ * side)}

Where:

  • side: 1 for long, -1 for short
  • margin_available
    • isolated: isolated_margin - maintenance_margin
    • cross: account_value - maintenance_margin
  • maintenance_reciprocal : 1 / maintenance_leverage
  • price: the indexed oracle price of a given asset

On pricing, we use the Mark Price as described in our Robust Price Indices documentation. The Mark Price is a sophisticated composite index calculated as the median of three inputs: an adjusted Oracle Price, the median of GTE’s order book data, and external exchange data. This approach ensures our liquidation pricing is both accurate and resistant to manipulation, providing fair and reliable liquidation conditions for all traders.

​
Liquidation Process

  1. Market Order Close

    If a position (or set of positions in cross margin) falls below the minimum margin requirement, GTE issues one or more market orders to close out the necessary amount of position(s).

  2. Partial Liquidation

    • In cases where there isn’t sufficient liquidity to fully close a position at market, GTE will liquidate as much as possible.
    • After partial liquidation, if the remaining position no longer violates the margin requirement, the trader keeps that smaller position and any associated collateral.

  3. Backstop Liquidation

    • If partial liquidation still does not bring the account or position above the margin threshold, the platform’s backstop mechanism (GTL) steps in.
    • The remaining position is transferred to the backstop, and the user forfeits the remaining margin allocated to that position.

Liquidations are executed as a market order to close the entire position. In the event that there is insufficient liquidity on the book to close the position, this would result in a partial liquidation.

After a partial liquidation, if the remaining position(s) meet the minimum margin requirement, the liquidatee keeps the remaining position & its associated collateral. Otherwise GTL will perform a backstop liquidation on the remaining position.