Liquidation

Liquidation Mechanism

The forced liquidation mechanism is triggered when a trader’s margin is insufficient to maintain their position, preventing negative balance risks and ensuring the stability of the trading system.

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Liquidation Trigger Conditions

Isolated Margin Mode

• Each position’s margin is calculated independently.

• Liquidation is triggered when a position’s Account Margin Ratio ≤ 100% (i.e., when the position’s margin balance is equal to or below its maintenance margin).

• Formula: Account Margin Ratio = Position Margin Balance / Position Maintenance Margin

Cross-Margin Mode

• All positions share the account’s margin, with a unified Account Margin Ratio.

• Unrealized profit and loss (PnL) is included in the total margin balance.

• Liquidation is triggered when the Account Margin Ratio ≤ 100%.

• Formulas:

  • Account Margin Ratio = Account Margin Balance / Total Account Maintenance Margin

  • Account Margin Balance = Cross-Margin Available USDT Balance + Cross-Margin Unrealized PnL

  • Total Account Maintenance Margin = Sum of Maintenance Margins for All Cross-Margin Positions

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Liquidation Process

1. Liquidation Trigger:

   • When the Account Margin Ratio ≤ 100%, the system initiates the forced liquidation process.

2. Cancel Open Orders:

   • All unexecuted orders (including standard and strategy orders) in the account are canceled.

3. Tiered Liquidation Based on Risk Limits:

   • The system lowers the position’s risk limit by one tier and liquidates the portion of the position exceeding the new limit.

4. Condition Check and Iterative Execution:

   • If the Account Margin Ratio rises to ≥ 100% during liquidation, the process stops.

   • If the ratio remains below 100%, the system continues lowering the risk limit and liquidating portions of the position until either:

     • The Account Margin Ratio reaches 100%, or

     • The entire position is liquidated, completing the process.

5. Liquidation Execution:

   • During liquidation, the system places orders at the bankruptcy price, prioritizing execution against existing orders in the order book.

   • Surplus Handling: Any margin surplus from executions at prices better than the bankruptcy price is transferred to the risk fund.

   • Loss Coverage: Losses from executions at prices worse than the bankruptcy price are covered by the insurance fund.