Liquidation

When it happens

Every margined position has a maintenance margin, and every account has an equity: its collateral plus the open position at the venue's mark. As long as equity is above maintenance margin, nothing happens, however large the paper loss. The moment equity falls to or below it (utilization at 100% or more), the venue's risk engine steps in and closes positions until the account is safe again. You don't choose the price or the timing; there is usually no warning beyond the margin call your utilization was already showing.

Short options are the usual cause, because their losses grow with the move and with volatility: a short call in a rally, a short straddle in any sharp move.

How each venue does it

The venues publish different procedures. BOSS models them as follows:

• Deribit closes the position in steps of 12.5% at the mark price, stopping as soon as equity covers maintenance margin again. A mild breach costs you only a slice of the position.
• OKX reduces a position tier by tier and closes what is left at the mark. At the first tier, which is all BOSS models, that means closing it whole. It also charges a liquidation clearance fee equal to the maintenance margin of what it closes.
• Bybit is modeled as closing the position whole, since its options documentation describes the fee rather than a step size.

On top of that, each venue charges a liquidation fee per contract: on Deribit the normal trading fee plus min(0.0019 BTC, 25% of the option's price); on OKX the taker fee plus 7% of the option's premium (before the clearance fee); on Bybit 0.2% of the index.

A worked example on Deribit

BTC is at $100,000. To keep the arithmetic in dollars, assume a USD account (a simplification: Deribit's BTC options are inverse and settle in BTC, but BOSS's Paper trading lets you choose USD collateral) with $38,000 of collateral, just above the $37,800 of initial margin Deribit's standard model asks for. You sell one 14-day $100,000 straddle for $3,900 per leg: $7,800 in all (entry fees are left out to keep the numbers simple). A week later BTC has rallied to $115,000 at an unchanged 50% IV. The call is now marked at $15,060 and the put at $60.

• Equity: $38,000 + $7,800 − $15,060 − $60 = $30,680.
• Maintenance margin: call max(7.5% × $115,000, 7.5% × $15,060) + $15,060 = $23,685; put max(7.5% × $115,000, 7.5% × $60) + $60 = $8,685; total $32,370.
• Utilization: $32,370 / $30,680 = 105.5%. Deribit liquidates.

It closes 12.5% of the straddle at the mark. Closing at the mark turns that slice's loss into a realized loss without changing equity; what lowers equity is the fee. Per straddle, the fee is $34.50 + $218.50 on the call plus $7.50 + $15 on the put (both caps bind on the cheap put), $275.50, so one 12.5% step costs about $34. Equity is now about $30,646 and maintenance margin falls to 87.5% × $32,370 = $28,324: utilization 92.4%, so one step was enough. You still hold 87.5% of the straddle, and the next rally starts the process again.

The same position on OKX or Bybit would not have been liquidated yet, because their maintenance rates are lower (about $24,320 and $22,480 here). But when they do liquidate, the whole position goes at once, and on OKX the clearance fee alone is the maintenance margin of everything closed, up to what is left in the account.

Liquidation in Paper trading

BOSS's Paper trading simulates this. When you open a paper position you choose its collateral and a margin model (standard or portfolio), and BOSS then replays every completed hour since opening at that hour's low, high and close. If utilization reached 100%, it liquidates the way the position's venue does, with its fees, and shows both results: with the liquidations and had nothing been liquidated. These are estimates built from public rules, not the venue's own figures.