> For the complete documentation index, see [llms.txt](https://docs.perennial.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.perennial.finance/protocol/markets/margin-and-liquidations.md).
# Margin & Liquidations
## Margin
Makers and Takers have the ability to trade in a more capital-efficient manner by using leverage. Because trading with leverage means that a participant's notional exposure may far exceed the amount of collateral provided, a risk mitigation mechanism is required via margin and liquidation to prevent insolvency.
In Perennial, the Market Operator sets the parameters `maintenance`, `margin`, `minMaintenance`, and `minMargin`.
* `margin` and `minMargin` define the ratio and minimum dollar amount (respectively) of collateral required to open or change a leveraged position (i.e., initial margin).
* `maintenance` and `minMaintenance` define the ratio and minimum dollar amount (respectively) of collateral that is required to maintain a leveraged position and prevent it from being liquidated (i.e., maintenance margin).
These parameters set how much notional exposure a Maker can provide and how much leverage a Taker can obtain. Based on these parameters, Makers' and Takers' initial margin and maintenance requirements are defined by:
`marginRequirement = max(position * price * margin, minMargin)`\
`maintenanceRequirement = max(position * price * maintenance, minMaintenance)`
For example, if the `maintenance` (ratio) is set at 20%, then the maximum leverage a Taker could obtain would be 5.0x (1 / 20% = 5). Assuming the price of ETH is $1000, the table below shows the maintenance margin required according to the notional positions for a Long-ETH product:
| Side | Position | Notional | Maintenance | Leverage |
|---|
| Maker | 10 | $10,000 | $2,000 | 5x |
| Taker | 5 | $5,000 | $1,000 | 5x |
## Liquidations
An account can be liquidated whenever its collateral drops below the `maintenanceRequirement` for their position.
As is the case with other position changes, a liquidation must sit in a pending state until the next oracle update. However, a special lock is placed on the account during this period of pending liquidation so that the liquidation process cannot be interfered with. The user may not open or close a new position (or be liquidated again) until the liquidation process is completely settled and the lock is cleared.
A minimum level of `margin`, `minMaintenance`, is set such that all non-zero positions must have enough collateral to incentivize a liquidation—even in cases where a position becomes undercollateralized. The `maintenanceRequirement` is always no less than the `minMaintenance`. For risk management purposes, the maintenance requirement for Makers is calculated by assuming 100% utilization of their exposure.
When a position is successfully liquidated, the liquidator can withdraw a fee from the collateral account. The liquidation fee is a parameter that is calculated as a multiple of the settlement fee. The liquidation fee is optional as self-liquidations are permitted. Perennial does not take a protocol or product owner cut of the liquidation fee.
The table below provides an example of the liquidation reward (fee) that can be collected (Assuming a 20% liquidation reward:
| Collateral ($) | Maintenance Requirement ($) | Liquidation Reward ($) | |
| -------------- | --------------------------- | ---------------------- | ------------------------ |
| 10,000 | 15,000 | 3,000 | Eligible for liquidation |
| 30,000 | 32,000 | 6,400 | Eligible for liquidation |
| 25,000 | 20,000 | N/A | Safe (above requirement) |