1. What is forced liquidation?
Forced liquidation refers to the event that when the margin reaches the maintenance margin level, your position must be liquidated and you will lose all maintenance margin. When the reasonable price touches the liquidation price, the forced liquidation is triggered.
2. How does the forced liquidation mechanism work?
(1) The risk limit requirement is that the larger the position, the higher the level of margin required.
When the position is large, once the liquidation is triggered, there may be a risk that the liquidation cannot be safely liquidated, which will affect the market, and the liquidation engine of MXC can use more margin to effectively liquidate a large number of positions.
If the liquidation is triggered, MXC will cancel all outstanding orders for the contract to release the margin and maintain the position. Entrustment of other contracts will not be affected. MXC uses a partial liquidation method, which will automatically try to reduce the maintenance margin requirement and avoid all positions being liquidated.
(2) Users who use the lowest risk limit
MXC cancels all outstanding orders for this contract. If the maintenance margin requirement has not been met at this time, the position is taken over by the liquidation engine at the bankruptcy price.
(3) Users who use high risk limits
The forced liquidation system will use the following methods to try to reduce the user's risk limit, thereby reducing the margin requirement: cancel uncompleted orders, but retain the existing position, and reduce the user's risk limit. If the position is still in liquidation, then all positions will be taken over by the liquidation system at the bankruptcy price.
(4) Use a reasonable price for forced liquidation
MXC uses reasonable price marking methods to avoid forced liquidation due to lack of liquidity or market manipulation.
What is the difference between the forced liquidation of a forward contract and a reverse contract, and how is it calculated?
Forward contract (contract product calculated based on USDT):
(1) Calculation of the liquidation price in the warehouse-by-warehouse mode (the margin can be manually added in the warehouse-by-warehouse mode)
Liquidation conditions: position margin + floating profit and loss <= maintenance margin will cause a liquidation event;
Long position: liquidation price = (maintenance margin-position margin + average open price x quantity x face value)/(quantity x face value);
Short position: liquidation price = (average opening price x quantity x face value-maintenance margin + position margin) / (quantity x face value);
E.g:
A user buys 10,000 BTCUSDT perpetual contracts at a price of 8,000USDT, the initial leverage is 25x, and the position is long
Maintenance margin=8000x10000x0.0001x0.5%=40USDT;
Position margin=8000x10000x0.0001/25=320USDT;
Can calculate the user's liquidation price
Long position liquidation price = (40-320+8000x10000x0.0001)/(10000x0.0001)=7720
(2) In full position mode (all available will be used as position margin)
In the full position mode, all available users will be used as position margin, but it should be noted that in the full position mode, the full position that has already lost will not be the user's other positions as margin.
Reverse contract (coin-based contract)
(1) Calculation of the liquidation price in the warehouse-by-warehouse mode (the margin can be manually added in the warehouse-by-warehouse mode)
Calculation of liquidation price:
Liquidation conditions: position margin + floating profit and loss <= maintenance margin will cause a liquidation event;
Long position: liquidation price = average open price x quantity x face value/(quantity x face value + average open price (position margin-maintenance margin));
Short position: liquidation price = average open price x quantity x face value/(average open price x (maintenance margin-position margin) + quantity x face value)
E.g:
A user buys 10,000 BTCUSD perpetual contracts at a price of 8,000, the initial leverage is 25x, and the position is long
Maintenance margin=10000x1/8000x0.5%=0.00625BTC;
Position margin=10000x1/(25x8000)=0.05BTC;
Can calculate the user's liquidation price
Long position liquidation price=(8000x10000x1)/(10000x1+8000x(0.05-0.00625))=7729
(2) In full position mode (all available will be used as position margin)
In the full position mode, all the users can use as position margin, but it should be noted that in the full position mode, the full position that has lost money will not be the user's other positions.
*Through the above formula, we can know the distance between the opening price and the opening price after manually increasing the position margin; therefore, when the user's risk is relatively high, the user's risk can be reduced by manually increasing the margin.