How liquidation works on Worm
Liquidation is how a leveraged position closes when the price moves too far against it. It protects the capital Worm adds to your trade. It is the main risk of trading with leverage, so it is worth understanding before you open a position.
What liquidation is
On a leveraged market, you put in your own capital and Worm supplies the rest. If the price moves against you, your position loses value faster than an unleveraged one would.
At a certain price, before your losses reach your full stake, the position is closed automatically. That forced close is a liquidation.
Your liquidation price
Every leveraged position has a liquidation price. The trade panel shows it before you confirm a trade. If you add to a position, the liquidation price is recalculated for the combined position.
Without leverage, there is no liquidation risk.
Why it can happen fast
Prediction markets can have thinner liquidity than traditional financial markets. Prices can jump around big news or key moments in a game. A position that looks safe can reach its liquidation price faster than expected.
What it costs
Your position is liquidated before your losses reach your full stake. You get nothing back, no fee is charged, and you can never lose more than you put in.
When a liquidated position closes, your stake is lost and no fee is charged. The same is true if a position simply loses at resolution.
How to manage the risk
- Set a stop loss to close the position at a price you choose before liquidation.
- Trade without leverage when you want no liquidation risk.
- Size each position so a liquidation is a loss you can afford.
An example
Illustrative numbers only. You put in $100 and Worm adds $100. At 2× leverage on Yes at 80¢, $200 buys 250 shares. News breaks and Yes falls quickly. If it reaches your liquidation price, the position closes automatically. You get nothing back, and no fee is charged.
If you had set a stop loss above the liquidation price, the position would close there first and limit the loss. Real trades include slippage, so the actual fill can differ from the level you set.
Frequently asked questions
No. Liquidation happens automatically when the price reaches your liquidation price. To lower the risk, set a stop loss before that point or trade with lower leverage.
No. A liquidated position returns nothing, and no fee is charged.
Only if it lowers your overall leverage. Adding to a position is a new buy, and your liquidation price is recalculated for the combined position.
No. Without leverage there is no liquidation risk. A losing position simply returns nothing at resolution, with no fee.