How BULK Exchange Liquidations Work: The Optimizer That Preserves Your Hedges

BULK Exchange uses a liquidation optimizer that explicitly skips positions that provide hedging benefit. Standard liquidation engines close the worst positions first, which can destroy a hedge and require further liquidations. BULK’s engine targets margin recovery with the fewest liquidations possible.

This matters practically: a hedged portfolio is harder to liquidate into a death spiral on BULK than on most other perp DEXes.

When Liquidation Triggers

Two conditions must both be true simultaneously:

1. Equity < Portfolio maintenance margin
2. At least one position has negative PnL

Both conditions are evaluated using mark price, not last-traded price. Mark price is derived from multiple oracle sources and is resistant to manipulation via thin order books.

If your equity is above maintenance margin, you won’t be liquidated regardless of unrealized PnL. If equity is below but all positions are in profit, liquidation doesn’t trigger.

Step 1: Order Cancellation

Before any position is touched, all open orders are cancelled immediately.

This prevents your resting limit orders from adding additional exposure during a liquidation event. It also prevents the awkward scenario where a fill occurs mid-liquidation, worsening the position.

Step 2: The Optimizer Algorithm

This is where BULK’s liquidation design differs from standard engines.

What most exchanges do: Sort positions by loss amount. Close the biggest loser first. Repeat until margin requirement is met. Problem: the biggest loser is often the hedge. Closing it removes the margin benefit, requiring more liquidations.

What BULK does: Run an optimizer that evaluates the margin impact of closing each position and skips positions where closing would not help (or would hurt) the margin situation.

The Algorithm in Detail

Calculate the margin gap:

Margin gap = Portfolio maintenance margin - Current equity

Determine the liquidation proportion based on gap severity:

• Gap > 30% of maintenance margin → liquidate 25% of affected position
• Gap > 10% → liquidate 10%
• Gap ≤ 10% → liquidate 5%

For each position, calculate:

• ΔM_position = Change in portfolio margin from closing this position
• Liquidation cost = Spread + market impact of closing

Skip positions where ΔM_position ≈ 0 or positive. If closing a position would not reduce margin requirements (or would increase them), skip it. Closing a hedge reduces your correlation offset and increases your required margin — BULK’s optimizer recognizes this and leaves the hedge alone.

Rank remaining positions by impact ratio:

Impact ratio = Margin reduction / Liquidation cost

Close the highest-impact-ratio position first, at the determined proportion.

Repeat up to 100 cycles until the margin gap is resolved.

Why Hedge Preservation Matters

Consider a trader holding long BTC and short ETH at ~0.85 correlation, $500k notional each.

Portfolio margin (BULK): Total margin requirement might be $30k instead of $80k due to correlation offset.

If BTC drops sharply and the portfolio margin is breached:

Standard liquidation: Close the short ETH (the “winning” position, smallest loss). But this removes the correlation offset. Now the long BTC position needs full independent margin — $50k instead of $30k. The margin breach is worse. More liquidations needed.

BULK liquidation optimizer: Evaluates the short ETH. Finds that closing it increases the effective margin requirement. Skips it. Closes a partial position on the long BTC instead, reducing notional exposure while preserving the hedge. Fewer liquidations, less portfolio disruption.

The documentation describes this directly:

“Prevents downward spiral of further liquidations.” — BULK Exchange Architecture Documentation

The Insurance Fund

Liquidation shortfalls — cases where market impact during liquidation produces a loss exceeding account equity — are covered by BULK Exchange’s insurance fund.

What this means for traders: You cannot owe more than your account balance. If a liquidation produces a loss exceeding your equity, the insurance fund absorbs the difference. You don’t receive a margin call beyond your deposited collateral.

The insurance fund is capitalized from exchange revenue. No liquidation fees are charged to the liquidated trader.

ADL: Auto-Deleveraging (Last Resort)

Auto-deleveraging is triggered only when:

1. The insurance fund is insufficient to cover a liquidation shortfall, AND/OR
2. Insufficient order book liquidity exists to close the position at a reasonable price

“ADL is an exceptionally rare event.” — BULK Exchange Architecture Documentation

When ADL triggers, the system reduces positions of the most profitable leveraged traders pro-rata. Rankings are based on PnL × leverage — the traders most benefiting from the imbalance are deleveraged first.

ADL events are announced in real-time via the exchange interface.

How to Avoid Liquidation

1. Use the portfolio margin calculator. Before entering positions, model your exact margin requirement and liquidation price. Available live at early.bulk.trade.

2. Add hedges to reduce effective notional. A correlated hedge dramatically reduces your portfolio margin requirement, giving you more buffer before liquidation.

3. Use isolated margin for high-risk positions. Isolate experimental or high-leverage trades. If they’re liquidated, your main account is unaffected.

4. Set stop-losses. Conditional orders close positions at your chosen loss level before liquidation is triggered. Set them at order entry using on-fill stop-loss orders.

5. Monitor funding rates. If you’re holding a large position with high positive funding, the funding drain depletes your equity over time. Factor this into your maintenance margin buffer.

Frequently Asked Questions

What triggers liquidation on BULK Exchange? Liquidation triggers when both equity falls below portfolio maintenance margin AND at least one position has negative PnL. Both conditions must hold simultaneously. Mark price is used, not last-traded price.

Does BULK Exchange have liquidation fees? No. Per the architecture documentation: “No liquidation fee.” The insurance fund covers shortfalls.

What is ADL on BULK Exchange? Auto-deleveraging is a last-resort mechanism triggered when the insurance fund is insufficient or order book liquidity is too thin to process a liquidation normally. It deleverages the most profitable leveraged traders pro-rata. Described as “an exceptionally rare event.”

How does BULK preserve my hedges during liquidation? The liquidation optimizer evaluates the margin impact of closing each position. Positions that provide hedging benefit (where closing them would not reduce or would increase margin requirements) are skipped. Only positions where closure produces the highest margin recovery per liquidation cost are targeted.

Source: BULK Exchange architecture documentation. Last updated: June 3, 2026.

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