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What is Liquidation?

Forced liquidation is the process in which the system automatically closes a trader's position to prevent their net equity from becoming negative, triggered by price fluctuations that result in unrealized losses and cause the trader to lack sufficient margin.

What’s Estimated Liquidation Price?

The estimated liquidation price is for reference only and the actual forced liquidation price is the price when the margin ratio is ≥ 100%.

In cross margin mode

All USDT-margined contracts share the same margin in the cross margin account and all existing positions of these contracts will be liquidated simultaneously once the margin ratio is 100%, even if the estimated liquidation price varies for different trading pairs.

Reasons for changes in the estimated liquidation price

Changes in collateral assets due to the changes in unrealized PnL of other cross margin positions affected by price fluctuations.
Opening of other positions uses up partial funds in the account.
Transferring funds into the account or transferring funds out of the account.
Deductions of trading fees incurred from opening and closing positions.
The settling of funding fees (including paying or collecting funding fees).

In isolated margin mode

Each contract has its own separate margin for the position, and the margin of different contracts does not affect each other. Once the margin ratio of a position reaches 100%, that position will be liquidated, but other positions will not be affected.

Reasons for changes in the estimated liquidation price

The user adjusts (increases or reduces) the margin for the open position.
The settlement of funding fees (including paying or collecting funding fees).

Margin ratio (Isolated) = Isolated maintenance margin / （Isolated Position Margin + Isolated Unrealized PnL）

Margin ratio (Cross) = Σ Cross maintenance margin / （Balance - Σ Isolated Position Margin + Cross Unrealized PnL

Note:

To reduce unnecessary liquidations, USDT-margined contracts use mark price as another reference price for liquidation. That is, when the system determines whether to trigger a liquidation or not, it must satisfy that the margin ratios calculated by the mark price are more than or equal to 100%. Using mark price for the calculation can lower the risk of liquidations caused by several abnormal last prices, which can lead to serial liquidations.

During the forced liquidation process, Toobit does not charge a liquidation fee.

What is Bankruptcy Price?

The bankruptcy price is the price at which the margin drops to zero. When the margin ratio is more than or equal to 100%, the system will place an order at the bankruptcy price to liquidate the position. Since the whole process doesn't go through the matching system, the bankruptcy price will not be shown on the K-line and the bankruptcy price does not equal the actual liquidation price.

What is Risk Guarantee Fund?

When forced liquidation is executed at the bankruptcy price, the following will occur:

If the position can be executed at a price better than the bankruptcy price in the market, the surplus generated from the liquidation will be added to the Risk Guarantee Fund.
If the position cannot be executed at a price better than the bankruptcy price, the resulting deficit will be covered by the Risk Guarantee Fund. When the Risk Guarantee Fund is insufficient or rapidly depleted, auto-deleveraging (ADL) will be triggered.

Forced Liquidation Examples

1.Example for liquidation in the isolated margin mode:

Assume Eve opened a long position of 10 amount ETH/USDT at the price of 4,200 USDT. The leverage is 50x, so the maintenance margin ratio is 1%. Without considering the fee, what will happen to Eve’s position when the mark price of ETH/USDT swaps reaches 4,157 USDT?

Formula：

Margin ratio (Isolated) = Isolated maintenance margin / （Isolated Position Margin + Isolated Unrealized PnL）

Isolated maintenance margin = Entry Price * Amount * maintenance margin ratio
Isolated Position Margin = Entry Price * Amount / Leverage
Long Position Unrealized PnL = （ Mark Price - Entry Price）* Amount

Therefore，

Isolated maintenance margin =4,200 * 10 * 1%= 420 USDT

Isolated Position Margin =4200 * 10 / 50= 840 USDT

Long Position Unrealized PnL =(4,157 - 4,200) * 10= -430 USDT

Margin ratio (Isolated) =[420/(840 -430]*100%=102.43%

At this point, the margin ratio is ≥100%, triggering forced liquidation. Eve's ETH/USDT long position will be liquidated when the mark price reaches 4,157 USDT

2. Example for liquidation in cross margin mode:

Assume Tom has 350 USDT in his Futures account, opened a long position of 20 amount ETH/USDT at the price of 1,600 USDT. The leverage is 100x, so the maintenance margin ratio is 0.50%. Without considering the fee and no isolated postions, what will happen to Tom’s position when the mark price of ETH/USDT swaps reaches 1,598 USDT?

Formula：

Margin ratio (Cross) = Σ Cross maintenance margin / （Balance - Σ Isolated Position Margin + Cross Unrealized PnL

Σ Cross maintenance margin = Entry Price * Amount / Leverage
Long Position Unrealized PnL = （Mark Price - Entry Price）* Amount

Therefore;

Σ Cross maintenance margin = 1,600*20/100=320 USDT

Long Position Unrealized PnL = (1,598 - 1,600）*20= - 40 USDT

Margin ratio (Cross) = [320/(350-40)]*100%=103.22%

At this point, the margin ratio is ≥100%, triggering forced liquidation. Tom's ETH/USDT long position will be liquidated when the mark price reaches 1,598 USDT. If the system detects that there are no pending orders and no long and short positions of the same currency to close and offset with each other, the user's positions will be liquidated in the order of unrealized PnL (the position with the greatest loss will be liquidated first).

(The above content is for explanation only, the specific settings or related changes shall subject to the latest announcement)

Toobit reserves the right in its sole discretion to amend or cancel this announcement at any time and for any reason without prior notice.

Risk Warning: Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Toobit is not liable for any losses that might arise from your use of Margin. This information should not be regarded as financial or investment advice. For more information, see ourTerms of UseandRisk Warning.

투빗

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Liquidation Introduction of Perpetual Contract

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