Tips to Avoid Liquidations

To avoid liquidations and protect your funds from liquidation bots in Vanna Protocol, it’s essential to maintain a healthy balance between your borrowed funds and collateral. Liquidations occur when your health factor (a numerical representation of the safety of your margin account) drops too low due to market volatility, leading to a forced sell-off of your positions to cover the loan. Here’s how you can proactively avoid liquidations:

Strategies to Avoid Liquidation:

1. Monitor Your Health Factor Regularly:

• Check your account’s Health Factor frequently through the Greeks Dashboard to ensure it stays well above the liquidation threshold. The dashboard provides real-time updates on the health factor based on your position size, collateral, and market movements.

• Use the dashboard to identify potential risks early and act before the liquidation trigger is hit. For margin trading, liquidation points can be visualized, allowing for preemptive adjustments.

1. Add More Collateral:

• If your health factor is approaching dangerous levels, the quickest way to protect your positions is by adding more collateral. This will instantly increase the health factor, giving you more room for market fluctuations.

• Vanna’s Manage Tab allows you to swiftly deposit additional collateral, reducing the chances of liquidation.

1. Adjust Your Leverage:

• You can lower your leverage by reducing the borrowed margin from the lending pool. This step decreases the potential risk of liquidation while increasing your health factor. Use the dashboard’s risk metrics to assess the impact of leverage reduction on your positions.

1. Change Your Trading Strategy:

• Consider switching from highly volatile strategies to safer, more stable ones. For example, if you are in a strategy with directional exposure, switching to a delta-neutral or hedged strategy can significantly reduce the risk.

• Strategies like hedging with options or perpetuals can reduce directional risks, stabilizing your health factor during market turbulence.

1. Decrease Debt:

• Repay some of your borrowed amount to lower the overall debt on your account. By reducing debt, you can relieve the pressure on your health factor, increasing the margin of safety against liquidation.

1. Utilize Alerts:

• Vanna’s Greeks Dashboard and margin account interface offer customizable alerts that warn you when your health factor is approaching critical levels. This gives you ample time to adjust your positions, add collateral, or reduce your leverage.

Proactive Risk Management:

• Use delta-neutral strategies and hedges to protect your positions from sudden market swings.

• Ensure you’re well diversified across perpetuals, options, and spot markets to spread the risk and optimize position safety.

• Monitor your liquidation threshold and understand how close your positions are to being liquidated based on the health factor. The Greeks Dashboard will give you real-time insights into your collateral’s performance relative to your open positions.

By actively managing your health factor and following these strategies, you can maintain a safe margin account and avoid liquidation scenarios. The Greeks Dashboard plays a critical role in providing the necessary insights and alerts to help you stay proactive in your risk management efforts.