⚠︎ Risk warning: leveraged derivatives on unregulated platforms — you can lose everything you deposit. Not investment advice.
How Lighter liquidates a position
Mechanics verified against Lighter's official docs on 2026-09-29. Fees are on the Lighter fees page; how Lighter compares with other venues is in liquidations compared.
Lighter does not have one liquidation line. The docs define three margin requirements per market (initial, maintenance and close-out, in that order from largest to smallest) and a five-stage waterfall between them. Each requirement is the sum over your positions of size × mark price × the market's margin fraction, and your account value is collateral plus unrealised PnL at the mark price. If you lower leverage on a market, its initial fraction becomes the stricter of your setting and the market's own minimum.
The waterfall
| Stage | When | What the exchange does |
|---|---|---|
| Healthy | Account value ≥ initial margin requirement | Any operation that keeps the account healthy afterwards. |
| Pre-liquidation | Initial margin req. > account value ≥ maintenance margin req. | Only operations that do not increase any position and do not worsen the account-value-to-maintenance ratio. |
| Partial liquidation | Maintenance margin req. > account value > close-out margin req. | Open orders cancelled; then immediate-or-cancel orders at the zero price, one position at a time, for the full size, until the account is back above maintenance. |
| Full liquidation | Account value < close-out margin req. | The LLP takes over positions in ascending order of unrealised PnL, as long as each takeover keeps the LLP above its own initial margin. |
| Auto-deleveraging | Account value negative and the LLP cannot cover it | Positions matched against opposite-side accounts whose zero prices align. |
The zero price, and why a partial liquidation cannot make things worse
In partial liquidation Lighter sends orders on your behalf at a computed "zero price": for a long, mark price × (1 − maintenance fraction × account value ÷ maintenance requirement), and the mirror image for a short. The docs explain the point of it: when a trade executes at the zero price, "total account value to maintenance margin ratio stays the same", so any fill in this phase "only increases the account health, since the trade price is at least as good as the zero price." If every position closed at its zero price, account value would reach exactly zero.
Two consequences follow. Your position is closed one market at a time and in full, not trimmed by a percentage. And the liquidation fee applies only to the improvement over the zero price: if you are filled "at a better price than the zero price, liquidation engine takes up to 1% liquidation fee and sends it to LLP (insurance fund)."
The LLP: Lighter's insurance fund
Below close-out margin, the Lighter Liquidity Provider (LLP) takes over your positions. The docs describe LLP funds as "held within a single account, which acts as the counterparty to all LLP trading and liquidations", and state that "Auto-Deleverage (ADL) events are fully backstopped by LLP, meaning that liquidity providers absorb the associated risk."
Since the introduction of LLP Strategies, that capital is split into buckets (the docs' example is one each for crypto perps, FX and equities/RWAs). Each market belongs to one strategy, and losses are isolated per strategy: "if a given strategy has $1M in allocated collateral, its maximum loss exposure is limited to that $1M." A depleted strategy goes to ADL while the others are untouched. RWA markets, once served by a separate Experimental Liquidity Provider, now sit with the LLP and pay the standard liquidation fees.
Auto-deleveraging
ADL starts only when an account is negative and the LLP cannot cover it. The exchange pairs the bankrupt positions with opposite-side accounts "if their zero prices align", which the docs say ensures ADL "does not decrease the health of any account". In full liquidation, any position the LLP could not take over without breaching its own initial margin goes straight to ADL.
Isolated positions
An isolated market is treated as its own account with the same stages and formulas; its collateral is called AllocatedMargin. A loss there does not reach your cross positions, and cross collateral does not rescue it.
FAQ
Which price decides whether I am liquidated?
The mark price, which Lighter builds from its own order book, oracle index prices and other exchanges' marks. See mark price and funding.
Can I lose more than my collateral?
The design stops at zero: fills happen at or better than the zero price, the LLP absorbs what is left below close-out margin, and ADL covers what the LLP cannot. How it behaves in a real crash is not something the docs can promise.
Does non-USDC collateral change this?
Yes. With multi-asset margin, spot collateral can be sold in the same liquidation flow; see multi-asset margin.
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