Managing perpetual positions requires constant awareness of liquidation risk. Velar PerpDex's liquidation risk indicators provide real-time visibility into your position health, helping you make informed decisions before reaching critical thresholds.

This guide explains how these indicators work and how to use them effectively in your trading strategy.

How Risk Levels Work

The system evaluates your position health by calculating remaining collateral after accounting for unrealized losses, borrowing fees, and funding payments. Based on this calculation, every position receives one of three risk classifications:

High Risk: Less than 25% collateral remaining Your position has minimal buffer against adverse price movements. Small market shifts could trigger liquidation. This level signals the need for immediate action: add collateral, reduce position size, or close the position.

Medium Risk: 25-75% collateral remaining Your position maintains moderate protection but requires active monitoring. Significant price movements could push you into high-risk territory. Use this level to reassess your strategy and market outlook.

Low Risk: Above 75% collateral remaining Your position has substantial margin buffer and can withstand normal market volatility. While monitoring remains important, these positions operate within comfortable safety parameters.

Understanding the Liquidation Threshold

The liquidation threshold determines the exact point where your position becomes eligible for closure. Currently set at 1% of your total position size, this threshold serves as the final safety mechanism.

Your position faces liquidation when either:

• Remaining collateral drops to or below the threshold

• Net position value falls to or below the threshold

Practical Example: You deposit $1,000 and open a 2x leveraged position, creating $2,000 in market exposure.

• Liquidation threshold = $2,000 × 1% = $20

• Liquidation occurs when your remaining collateral or net value reaches $20

This calculation shows exactly how much adverse price movement your position can absorb before automatic closure.

Reading Your Position Health

The risk indicator updates with each block, reflecting current market conditions and accumulated fees. Here's how to interpret what you're seeing:

When moving from Low to Medium Risk: Market movements or accumulated fees have reduced your margin buffer. Consider your conviction level for this trade and whether current market conditions support holding the position.

When reaching High Risk: Your position approaches dangerous territory. Please closely monitor your position and consider closing it before hitting the liquidation point.

Threshold Proximity: As you approach the liquidation threshold, even small price movements become significant. The closer you get to this level, the more urgent your decision becomes.

Making Risk Indicators Work for You

Remember that borrowing fees and funding payments continuously affect your position health. Positions held for extended periods will gradually move toward higher risk levels even without adverse price movements, so monitor long-term positions regularly.

These indicators work best as early warning signals rather than emergency alerts. Respond to medium risk levels proactively instead of waiting for high-risk situations. This approach allows you to make decisions during more favorable market conditions rather than under pressure.

The liquidation risk indicators provide clear visibility into your position health, removing guesswork from risk management. Use them alongside your existing trading strategy to make more informed decisions about when to hold or close positions.