A Guide to Partial Liquidation and Tiered Margin Systems.

Understanding Partial Liquidation Mechanics

1. Partial liquidation occurs when a trader’s position breaches the maintenance margin threshold but does not fully collapse the entire equity balance.

2. Instead of closing the whole position at once, the system reduces exposure incrementally based on unrealized loss magnitude and leverage level.

3. This mechanism prevents abrupt full-position termination during volatile price swings, preserving remaining capital for potential recovery.

4. Each partial liquidation event recalculates the margin ratio using updated position size and current mark price.

5. Traders observe reduced position size and adjusted entry price averages after each partial trigger, altering subsequent risk calculations.

Tiered Margin Structure Explained

1. Tiered margin divides initial margin requirements into progressive bands tied to position size relative to account equity.

2. Smaller positions demand lower margin percentages while larger positions face stepwise increases in required collateral.

3. A 10 BTC long position may require only 1% initial margin, whereas a 100 BTC long could trigger 5% due to tier thresholds.

4. These tiers are enforced per asset class and often vary between spot-margin and perpetual swap products.

5. Exchanges publish exact tier boundaries and corresponding margin rates in public documentation, updated dynamically with market conditions.

Interaction Between Partial Liquidation and Tiered Margin

1. When partial liquidation reduces position size, the system re-evaluates which margin tier applies to the remaining exposure.

2. A drop from Tier 4 to Tier 2 margin may temporarily improve effective leverage and delay further liquidation triggers.

3. Conversely, rapid price movement combined with high-tier positioning can accelerate consecutive partial events across multiple tiers.

4. The mark price used in both tier assignment and liquidation calculation is sourced from external oracles or index feeds—not internal order book data.

5. Some platforms apply dynamic tier adjustments during liquidation sequences, modifying margin bands mid-process to reflect real-time funding pressure.

Risk Management Implications for Traders

1. Traders must monitor not only their total margin ratio but also the specific tier they occupy to anticipate upcoming margin jumps.

2. Adding funds mid-trade does not retroactively shift tier assignments—only new position entries or size expansions trigger re-tiering.

3. Stop-loss orders placed near tier boundaries may execute just before or after a partial liquidation, creating unexpected slippage outcomes.

4. Historical backtesting shows that accounts holding positions spanning three or more tiers experience 68% more partial events than those within a single tier.

5. Margin call notifications do not guarantee time to act; many exchanges initiate partial liquidations within 200 milliseconds of threshold breach detection.

Common Questions and Answers

Q: Does partial liquidation affect my unrealized PnL calculation?Yes. After each partial event, unrealized PnL resets based on the new average entry price and remaining position size.

Q: Can I manually reduce position size to avoid entering a higher margin tier?Yes. Reducing exposure before hitting a tier boundary lowers required margin and may prevent automatic partial liquidation cascades.

Q: Are tiered margin rules applied uniformly across all cryptocurrency assets?No. Assets with higher volatility like DOGE or SHIB often feature steeper tier gradients compared to BTC or ETH.

Q: Do funding rates change during partial liquidation sequences?Funding rates remain unaffected by partial liquidation status—they are determined solely by the perpetual contract’s interest rate model and index price deviation.