# Liquidation

## How is liquidation price determined?

Each leverage position of Pika Exchange has a strike price, at which the value of the position is equal to 0. In any exchange that supports leverage positions, there is always a price buffer to liquidate the positions before the collateral is depleted, which is used to protect exchanges from insolvency. Pika Exchange has a buffer value of 93% for liquidation. 

Long position example:

* A user opens a 5x long position of ETH/USD at price $1000.
* Since Pika is an inverse perpetual exchange, this position is interpreted by protocol as 5x short position of USD/ETH at price 1/1000.
* The strike price of the inverse short position:  1/1000 - 1/1000 / leverage=0.0008.
* The strike price of the long position: 1/0.0008 = $1250.
* The liquidation price of the inverse short position:  0.0008/0.93 = 0.00086.
* The liquidation price of the long position: 1/0.00086 = $1163.

Short position example:

* A user opens a 5x short position of ETH/USD at price $1000.
* Since Pika is an inverse perpetual exchange, this position is interpreted by protocol as 5x long position of USD/ETH at price 1/1000.
* The strike price of the inverse long position:  1/1000 + 1/1000 / leverage = 0.0012.
* The strike price of the short position: 1/0.0012 = $833.
* The liquidation price of the inverse long position:  0.0012 \* 0.93 = 0.001116.
* The liquidation price of the short position: 1/0.001116 = $896.

Check out parameter page for more details.<br>

## How is liquidation triggered?

Liquidations are normally triggered by external bots for most decentralized derivatives exchanges, where bots consistently check each user’s margin position for liquidation opportunities. The liquidation is often triggered on a per user basis when the margin falls below a certain requirement. Bots are normally rewarded by part of the liquidated user’s balance as incentive.

During the big price movement, this type of liquidation mechanism often has problems. Since bots need to liquidate each user one by one, it is often the case that bots are not fast enough to take care of all the positions that need to be liquidated, resulting in loss of insurance funds for the protocol. Pika Exchange adopts the bot-less liquidation mechanism, where each trade execution automatically checks if there are positions to liquidate. Also, instead of checking each user’s account, Pika Exchange simply invalidates a set of strike prices that is to be liquidated. The leveraged tokens with invalidated strike prices can no longer be traded back to the protocol, meaning the value of which is 0.


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