> For the complete documentation index, see [llms.txt](https://docs.amara.exchange/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.amara.exchange/security/risk-management.md).

# Risk Management

Amara’s design places risk management at the center of its perpetual and spot markets. Because the protocol supports leverage and synthetic assets, it must maintain strict controls to protect both liquidity providers and traders.

**Liquidations**\
Liquidations act as the first line of defense for vault health.

* When a trader’s collateral falls below the maintenance margin requirement, their position is flagged for liquidation.
* Keepers execute the liquidation using the latest oracle price feed, ensuring accurate settlement.
* A portion of the liquidated collateral is used to cover the debt, while penalties are routed back into the vault as compensation to liquidity providers.
* This mechanism ensures that vault solvency is always preserved, even during volatile market conditions.

**Funding Rates**\
To keep long and short demand balanced, Amara applies dynamic funding payments. Traders on the heavier side of the market pay a fee to those on the lighter side. This stabilizes exposure in the vault and reduces the risk of prolonged directional imbalance.

**Insurance Logic**\
Amara inherits the vault-based insurance model of GMX. The vault itself acts as insurance for the protocol, absorbing losses when traders win and accruing profits when traders lose. By design, LPs take on directional risk, but this is offset by the consistent inflow of fees from swaps, funding, and liquidations.

**Hedging Opportunities**\
In the long term, Amara plans to expand risk management with hedging strategies. For example:

* The protocol treasury may use external venues to offset extreme exposures.
* Green index products can spread collateral risk across multiple synthetic markets, reducing dependence on any single asset.

By combining automated liquidations, dynamic funding, and vault-based insurance, Amara maintains systemic balance. Future hedging tools will enhance resilience further, ensuring that the protocol can scale while protecting participants from tail risks.


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