What is Liquidation?
To keep the positions open, traders are required to hold a percentage of the value of their position, i.e., the Maintenance Margin percentage. If a trader fails to fulfill the maintenance requirement, his/her position will be taken over by the liquidation engine and get liquidated, and the maintenance margin will be lost.
The calculation of the Maintenance Margin is based on the average entry price and the position leverage. Traders should take notice of the price gap between the liquidation price and the Mark price. If the Mark price reaches the liquidation price, the position will be taken over by the liquidation engine and get liquidated.
The liquidation process at Coincall Perpetual Futures involves the following steps:
Users using the lowest Risk Limit
If the Maintenance Margin requirement is not met then the whole position will be taken over by the liquidation engine and get liquidated at the Liquidation price.
Users using higher Risk Limit
- The liquidation system will attempt to bring a user down to a Risk Limit tier associated with his/her open orders and current position.
- An IOC order, of a size to bring the position value below a lower tier Risk Limit and thus reduce the Maintenance Margin requirement, will be sent.
- If the Maintenance Margin requirement is not met then the whole position will be taken over by the liquidation engine and get liquidated at the Liquidation price.
What will happen after liquidation?
All the margins of a position will be lost if the position is liquidated. When a position is taken over by the liquidation engine, the system will close the position at the liquidation price. If the account balance falls into a negative balance, the insurance funds will be applied to cover the cost and the trader will only lose the fixed amount of margin.
Minimization of Liquidations
- Fair Price Marking is used at Coincall Perpetual Futures for the purpose of avoiding liquidation due to liquid markets or manipulation.
- Traders could reduce the leverage size of their position by adding margins, therefore keeping the Mark price lower than the liquidation price.
For example, if a trader uses 100x leverage to long 5 BTC at a price of $5,000, then the Initial Margin of the position would be 0.05 BTC (fees not included) and the liquidation price would be $4,950.
If the trader increased the margin and added 0.05 BTC to the position, then the margin of the position becomes 0.1 BTC and the liquidation price will fall to $4,900.