What is Automatic Position Reduction?

When an investor is forced to close a position, their remaining position will be taken over by the platform's perpetual contract liquidation system. If the closed position is not closed in the market and when the fair price reaches the bankruptcy price, the automatic position reduction system will reduce the position of the investor who holds a position in the opposite direction. The order in which the positions are reduced will be determined by the leverage and profitability ratios, with the more profitable and highly leveraged positions being forced to participate in the counterparty reduction.



The starting point of the automatic position reduction system is to address the uncertainty of losses by allowing the user to make the decision to reduce a position as soon as the reduction event occurs, rather than waiting until the system settles or delivers the position. Users whose positions are automatically reduced are made aware of the position and the price at which they have been reduced. They then have the option to re-enter the market and choose whether or not to cover their position.



Social equalization on other trading platforms has unavoidable drawbacks:



1) A single high-risk user may incur large losses for all users (including low-risk users).

2) Gains must be locked in until the system settles or trades are made to prevent systematic losses, and the efficiency of capital utilization is greatly reduced.

Automatic Position Reduction Sorting

Sort = Profit percentage * Effective leverage (if profitable)

= Profit Percentage / Effective Leverage (if loss)



Effective Leverage = abs(Marked Value) / (Marked Value - Bankruptcy Value)

Profit Percentage = (Marked Value - Average Open Value) / abs(Average Open Value)

Marked Value = Value of the position at the Marked Price

Bankruptcy Value = value of the position at the Bankruptcy Price

Average Open Value = the value of the position at the average open price

Automatic Position Reduction Process

The automatic position reduction strategy is triggered when a position is closed based on the bankruptcy price of the user's closed position and the risk reserve is still insufficient;

The counterparty calculates the PnL ranking of the effective leverage from the yield and the effective leverage, and the trader with the most aggressive and profitable trading strategy will be prioritized by the position reduction system to be flagged to participate in the position reduction;

The executed party and the trader with the highest PnL ranking will be automatically reduced at the bankruptcy price.