Partial vs Full Liquidation Waterfall in Perpetual Futures Explained
Liquidation in perpetual futures is not always a single, violent event. On some exchanges it is a staged process: the exchange closes a portion of your position, recalculates your margin, and only proceeds further if conditions worsen. This is called a partial liquidation waterfall. Other exchanges simply close the entire position at once.
The difference matters for both risk management and market impact.
The trigger: maintenance margin
Every perpetual futures position has a maintenance margin level. This is the minimum equity required to keep the position open. When your margin ratio falls below that threshold, liquidation begins. The threshold itself varies by exchange and by the amount of borrowing you have taken on.
On exchanges that use partial liquidation, the engine does not wait for the entire position to become unsafe. It acts as soon as the maintenance margin is breached. The first step is a partial reduction.
How partial liquidation works
Bybit and OKX use this stepwise model. When your position triggers liquidation, the exchange automatically reduces the position size by a fixed percentage. Typically, this is around 20% to 50% of the position. The exact percentage depends on the borrowing multiplier and the exchange's internal rules.
After the reduction, the system recalculates your margin ratio. If the remaining position is now above the maintenance margin threshold, the liquidation stops. You keep the rest of the position. You have lost part of your exposure, but you are still in the trade.
If the margin ratio remains below the maintenance level after the first reduction, the engine takes another slice. It repeats this process until either the position becomes safe or the entire position is closed.
The key advantage is that the trader retains partial exposure. A trader who is wrong on direction but correct on the broader thesis can survive a sharp but brief price spike. The exchange also benefits: fewer full liquidations mean less sudden selling pressure.
The order type during the waterfall
The liquidation engine has a choice between limit and market orders. This choice affects both the price received and the market impact.
When a partial liquidation occurs, most exchanges use a limit order at the bankruptcy price. The bankruptcy price is the price at which the position's equity would reach zero. By placing a limit order at that level, the exchange avoids adding to immediate market pressure. If the market trades through that limit, the order fills. If not, the position remains open but at reduced size.
Some exchanges switch to market orders during high volatility or when the position is large relative to order book depth. This ensures the position is closed quickly, but it can push the price further against the trader.
Full liquidation on binance
Binance uses a different model. When your margin ratio falls below the maintenance margin, the entire position is closed at once. There is no staged reduction. The exchange cancels any open orders and immediately places a market order to close the full size.
This approach is simpler. It removes any ambiguity about whether a partial close will be enough. But it also means a trader can lose their entire position on a single price spike, even if the spike reverses immediately afterward.
Full liquidation also creates larger market impact. A single large market order can move the price significantly, especially in thin order books. This can trigger cascading liquidations of other positions.
Maintenance Margin Thresholds
The maintenance margin percentage determines how close a position is to liquidation. On partial liquidation exchanges, the threshold is typically higher than on full liquidation exchanges. This is because the partial model gives the trader a buffer: the first reduction happens at the same maintenance level, but the process allows the trader to survive with a smaller position.
For example, a 10x long on Bybit might have a maintenance margin of 0.5%. On Binance, a similar position might use 0.4%. The difference is small, but in fast-moving markets it can determine whether a trader loses everything or retains a reduced position.
Practical Implications
Partial liquidation reduces the likelihood of total loss. A trader who gets partially liquidated can still hold a position and potentially recover if the market reverses. The cost is that the trader has less exposure and may have missed the optimal entry point.
Full liquidation is final. The trader is out of the position entirely, regardless of what happens next.
For the market, partial liquidation dampens volatility. Smaller, staged closures spread selling pressure over time. Full liquidation concentrates it.
Neither system is inherently better. Each suits different trading styles and risk tolerances. The important thing is to know which model your exchange uses before you enter a trade. Check the exchange's documentation for its specific liquidation mechanics. The rules vary by exchange and by contract.
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