# How to Manage Liquidation Risk

## How to manage liquidation risk

Liquidation is a process that occurs when a borrower's **% Away from Critical LTV** goes below 0 (**Current LTV** is above **Critical LTV**) due to the value of deposited assets not providing enough coverage for all the borrowed assets. This might happen when the deposited assets fall in value relative to borrowed assets.&#x20;

Anyone can trigger liquidation of a margin account that has breached **Critical LTV**. If an account is capable of being liquidated, a liquidator can take over an account. It would need to take over the account completely (100% of deposits and borrows) and should have enough funds in its own account, so that that resulting loan-to-value is less than 1/\[110]%.

## How to monitor risk of your portfolio

Your **Loan Health** is driven by **Health Reserve**, which is the % by which the value of assets needs to go down by to reach a liquidation threshold.&#x20;

Once Loan-to-value of your portfolio (value of Borrows / value of Deposits) breaches Critical Loan-To-Value, your portfolio may be liquidated.&#x20;

Your **Loan Health** status is determined by **Health Reserve** as follows:

*Good*: above 30% away from Critical LTV

*Normal*: 10-30% away from Critical LTV

*Danger*: below 10% away from Critical LTV

![](https://2862614498-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FunV5LbC9IpqxGLrq5e7M%2Fuploads%2FIn32Eh3RCVLbR8wkG4dm%2F15?alt=media)

If your **Loan Health** is in the **red zone** you should deposit more funds to lower the loan-to-value of your portfolio.

Make sure to monitor your **Loan Health** to prevent liquidation.&#x20;
