# Liquidations

When users take out leveraged positions on TaraPerps they borrow funds from the MLP in order to fund the position. As security for this borrowing the users deposit collateral with the protocol. This collateral is held by the protocol to cover any losses that might be incurred by the trade and to manage any risk to liquidity providers.

When a trade is opened a snapshot USD value of the collateral is stored. If while the trade is active the amount of collateral remaining after the deduction of fees and losses is less than 1% of the position size then the position will be automatically closed. If, after closing the position there is any collateral remaining after deducting losses and fees, then this will be returned to the user account.

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**Caution:** The liquidation process can sometimes be triggered unexpectedly by sudden market movements or other factors, this could result in losses for traders if the value of their collateral drops rapidly. As such, it's important for users to carefully manage risk and maintain appropriate collateralisation to avoid liquidation
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