# Liquidations Emergency liquidations are initiated when the value of the collateral falls below a specified threshold. In such a scenario, the open position is closed, and the collateral is sold. The proceeds from this sale are used to cover the loan, accrued interest, any applicable fees, and a liquidation penalty. If there are any remaining funds, they are returned to the trader. * Liquidation is triggered when the value of the position exceeds the debt by only 5%. After liquidation, any remaining value from the position, after deducting the debt, is credited back to the trader's account. Additionally, a liquidation penalty is imposed on the trader. This penalty serves as a deterrent, encouraging traders to close their positions in a timely manner to avoid liquidation. * The criteria used to determine when to issue margin calls and initiate liquidations are based on various factors, including the market capitalization, the impact of large orders on price, the depth of market liquidity, and the distribution of holders. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.wasabi.xyz/perps-lite-paper/liquidations.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.