Liquidation occurs when a trader's account balance is not enough to keep the trader's positions open. A liquidation event triggers when the Net Asset Value becomes less than or equal to the Maintenance Margin.
As soon as NAV<=IM, a margin call will be issued to the trader via email. The trader can then choose to keep their positions open by increasing their account balance, and/or cancelling some or all open orders and/or closing some or all positions.
Liquidation of Futures, Perpetual and Spreads
As soon as the condition for the liquidation event (NAV <= MM) is met, the Bitfex Liquidation Engine will take over the trader's account. At this moment, all the open orders will be cancelled, and liquidation orders will be sent to market. During the liquidation event, a trader has no control over their account and cannot place, cancel or modify any orders from their account.
This will continue till NAV > MM.
A liquidation fee of 0.6% will be charged, that will go to the insurance fund.
On Bitfex, a trader's net asset value determines liquidation, so a trader with position in all the contracts will find positions in those contracts that are in a profit being liquidated, as long as NAV is less than the Maintenance Margin.
Bitfex Risk Engine
Bitfex Risk Engine does not liquidate the entire position in one go, instead does so via consecutive liquidation orders that are of some size of the total position and keep increasing in size. Through liquidating the position in orders incrementing in size until NAV > MM, the engine tries to ensure preservation of the account balance and thus capital of the trader.