> For the complete documentation index, see [llms.txt](https://argon-protocol.gitbook.io/argon-protocol/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://argon-protocol.gitbook.io/argon-protocol/trading/liquidation-mechanism.md).

# Liquidation Mechanism

#### Liquidation Overview in Trading

Liquidation occurs when a trader's total position value (which includes position margin, unrealized profit and loss (PNL), minus borrowing and funding fees) falls below the required maintenance margin. In such cases, a liquidation is triggered, and the position is closed by the keeper.

**Liquidation Price Formulas**

* Long Position: pl = {po x n - M + Funding + Interest} / {(1 - mm) x n}
* Short Position: pl = {po x n + M - Funding - Interest} / {(1 + mm) x n}

Where:

* $$po$$: Entry Price
* $$M$$: Initial Margin
* $$n$$: Number of Positions
* Funding: Funding Fees
* Interest: Borrowing Fees
* $$mm$$: Maintenance Margin Rate

**Liquidation Execution**

On the Argon, Protocol liquidations are carried out by both the system and decentralized liquidation robots. The system robot handles liquidations routinely, but in high-demand scenarios, the decentralized robot, relying on ChainLink prices, assists in executing liquidations. Community liquidators using the decentralized robot receive a 5 USDC reward per executed liquidation. Remaining margins, after deductions, are refunded to the trader’s wallet.

**Liquidation Process Details**

The maximum a trader can lose is the margin of their position. During liquidation, deductions occur in this order: Borrowing Fees → Funding Fees → Unrealized PNL → Insurance Fund → Margin returned to the trader. If the margin depletes during this process, the trader receives nothing back.

The position margin is calculated as: Unrealized PNL + Insurance Fund (Initial Position Value x 0.2%) + Returned Margin + Funding Fees + Borrowing Fees.

**Example Scenario**

* Consider a trader opening a 100x leveraged long position with 100 USDC as initial margin on ETH priced at 1,000 USDC, making the position size 10 ETH.
* Ignoring borrowing and funding fees, the liquidation price is:
  * $$Pl = Entry Price x (1 - 1/L) / (1 - mm) = 994.97 USDC$$

Upon liquidation:

1. **At a price of 930 USDC**:
   * Unrealized PNL: (930 - 1000) x 10 = -70 USDC
   * Insurance Fund: 930 x 10 x 0.002 = 18.6 USDC
   * Margin Returned: 100 - 70 - 18.6 = 11.4 USDC (assuming no borrowing/funding fees)
2. **At a price of 980 USDC**:
   * Unrealized PNL: (980 - 1000) x 10 = -200 USDC
   * After deductions, all remaining margin is added to the fund pool.


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