A liquidation engine is the system a trading platform uses to act on positions or accounts that breach liquidation conditions. It combines risk checks with procedures for reducing or transferring exposure when supporting margin becomes insufficient.
From monitoring to intervention
The engine evaluates relevant positions, collateral and unrealized profit or loss under the platform's rules. Many derivatives venues use a mark price for risk assessment rather than relying solely on the latest trade. Maintenance requirements can be breached before account equity reaches zero.
Intervention may include cancelling risk-increasing orders, closing part or all of a position, or transferring it to another mechanism. Some portfolio systems can add hedges to reduce overall risk. The sequence and the user's control during intervention depend on the venue and account mode.
Trigger prices are not execution promises
The price that triggers liquidation need not equal the eventual execution price or the bankruptcy price used in loss accounting. Liquidity, slippage, fees and continuing market moves affect the result. A prior request to add margin is not guaranteed.
Insurance funds and automatic deleveraging may handle remaining risk or deficits under separate rules. Their existence does not insure the trader's ordinary losses. The engine manages exposure and unpaid obligations; it does not guarantee capital preservation or an exit at a chosen price.