Risk Management
Monitor your margin health, understand liquidation, and protect your portfolio on Diffusal
Managing risk effectively is as important as selecting the right options. Diffusal provides real-time margin health indicators and clear warnings when your portfolio approaches liquidation thresholds.
Margin Health Indicator
The health ratio is displayed prominently in the Portfolio tab. It represents how far your current collateral is from the maintenance margin threshold:
Health Ratio = Total Collateral / Maintenance Margin RequirementA health ratio above 1.0 means your portfolio is solvent. As the ratio approaches 1.0, the risk of liquidation increases.
The health indicator uses a color-coded system:
| Status | Meaning |
|---|---|
| Green (healthy) | Comfortable margin buffer above maintenance threshold |
| Amber (warning) | Approaching the maintenance margin threshold — consider action |
| Red (critical) | Near or at the liquidation threshold — immediate action required |
Liquidation Proximity Warnings
When your health ratio falls into warning territory, a banner appears in the Portfolio tab alerting you to your current status. The banner escalates from a warning state to a critical state as the threshold approaches.
Warnings are dismissed when your margin health improves. If health worsens past a new threshold (e.g., you dismiss a warning but health continues to deteriorate into critical), a fresh alert appears.
What Happens During Liquidation
If your health ratio falls to or below 1.0, your portfolio becomes eligible for liquidation.
Diffusal uses atomic liquidation: rather than a single liquidator acquiring your positions, the protocol routes your positions directly to market makers via RFQ. This means:
- Your positions are transferred directly to market makers at close prices they've quoted
- The liquidator (the automated keeper) receives a small bounty for executing the liquidation
- You receive any remaining collateral after the maintenance margin deficit is covered
Atomic liquidation is designed to minimize slippage and reduce the impact on your remaining collateral versus forced position sales in an illiquid market.
How to Avoid Liquidation
Deposit More Collateral
The most direct way to improve your health ratio is to deposit additional USDT. More collateral increases the numerator of the health ratio, moving you away from the liquidation threshold.
See Collateral Management for instructions on depositing USDT.
Reduce Your Positions
Closing or partially closing positions reduces your maintenance margin requirement, which improves your health ratio from the denominator side.
To reduce positions:
- Navigate to the Portfolio tab, then the Positions sub-tab
- Click Close on the position you want to reduce
- Enter a closing quantity and submit the order
See Managing Positions for a full walkthrough.
Monitor Greeks
Keep an eye on your net portfolio Greeks — particularly delta (directional exposure) and vega (volatility exposure). Large unhedged exposures amplify P&L swings, which can cause collateral to drop quickly in adverse moves.
Rebalancing toward a more neutral portfolio can provide a buffer without requiring additional collateral deposits.