What is Forced Liquidation?

Forced liquidation means that when the margin reaches the maintenance margin level, your position must be closed and you will lose all maintenance margin. When the mark price reaches the liquidation price, the forced liquidation is triggered. Due to the leverage involved in derivatives transactions, there will be corresponding liquidation risks, that is, liquidation risks.



How to trigger forced liquidation?


If it is a cross position mode, when the account margin rate is lower than the required maintenance margin rate + liquidation fee, forced liquidation will be triggered;



If it is the isolated position mode, when the position margin rate is lower than the required maintenance margin rate + liquidation fee, forced liquidation will be triggered;

The process after triggering forced liquidation

Cancellation of orders: Cross-margin mode will cancel all current orders under the account. If automatic margin call is turned on in isolated-margin mode, all orders for the current contract will be cancelled. After executing the order cancellation, if the need to maintain the margin rate is still not met, proceed to the next step;

Long and short self-execution: Forcibly reduce the position of a full position that exists in both long and short directions through self-execution (only the forced liquidation of the cross position mode will have this step). After executing the long and short transactions, if the need to maintain the margin rate is still not met, proceed to the next step;

Ladder liquidation: If your position is at the lowest level of risk limit, proceed directly to the next step. If the risk limit level of your position is greater than 1 level, you need to downgrade it. That is, part of the position at the current level will be taken over by the liquidation engine at the bankruptcy price, thereby lowering the risk limit level, and then using the downgraded maintenance margin. The rate continues to calculate whether the margin ratio is greater than or equal to the maintenance margin rate + liquidation rate. If the liquidation conditions are still met, the downgrade process will continue until it is reduced to the lowest level;

Liquidation: The position is at the lowest level, but the margin ratio is less than the maintenance margin rate + liquidation rate, then the remaining positions will be taken over by the liquidation engine at the bankruptcy price. (The forced liquidation and takeover process does not go through the matching system, so the bankruptcy price will not be displayed on the market transaction records and K-line)

Processing after the liquidation engine takes over the position:

After your position is taken over by the liquidation engine at the bankruptcy price, if the position can be executed on the market at a price better than the bankruptcy price, the remaining margin will be added to the risk reserve;

If the position cannot be executed at a price better than the bankruptcy price, the loss will be covered by the risk reserve. Finally, if the risk reserve is insufficient to cover the loss of the position, the liquidated position will be taken over by the automatic position reduction system.

Why is ladder liquidation needed?

Ladder liquidation is a risk control measure adopted by Hotcoin to reduce the impact on the market and losses caused by liquidation of large positions. That is, the system will try to lower the corresponding gear to avoid the position being liquidated at once.


If the margin rate of a position is lower than the required maintenance margin rate + liquidation fee for the current tier, but is still higher than the maintenance margin rate + liquidation fee for the lowest tier, all of the user’s positions will not be directly transferred Forced liquidation. The system will calculate the number of positions required to reduce the position by one level and perform partial reduction. After a successful downgrade, if the margin rate meets the maintenance margin rate requirements of the new level, partial position reduction will stop; if it still does not meet the maintenance margin rate requirements of the new level, the partial reduction process will continue.