Liquidation mechanism

2025-10-20 03:16

1. What is liquidation

In Toobit's futures trading, liquidation is an automatic risk management mechanism that prevents accounts from taking on excessive risk. When a position's margin ratio falls to 100%, the system triggers liquidation, reducing or closing the position to protect users from further losses.

2. Estimated liquidation price (Est. Liq. Price)

The estimated liquidation price refers to the price at which the margin ratio equals 100% and is provided for reference only. The actual liquidation will occur when the margin ratio is at or above 100%. A lower margin ratio indicates relatively lower position risk.

About margin ratio:

The margin ratio is a key indicator used to assess the risk level of a position. A higher margin ratio means insufficient collateral and higher risk. A lower margin ratio indicates a safer position. It is strongly recommended that users monitor margin ratio changes closely and check notifications via email, in-app messages, or SMS to avoid unexpected liquidations.

Formulas:

Isolated Margin Ratio = (Maintenance Margin for Isolated Position) / (Isolated Position Margin + Unrealized P&L for Isolated Position)
Cross Margin Ratio = (Total Maintenance Margin of All Cross Positions) / (Account Balance − Total Isolated Margin + Unrealized P&L of All Cross Positions)

Notes:

The total maintenance margin in Cross Mode is calculated based on position size and open orders.
Maintenance margin represents the minimum margin required to sustain a leveraged position. It increases proportionally with position size.
No trading fees are charged during the liquidation process.

3. Liquidation process

Liquidation on Toobit differs slightly between isolated margin mode and cross margin mode:

(1) Isolated margin mode

When the margin ratio of an isolated position reaches 100% (i.e., the margin can no longer cover the required maintenance margin), the system triggers liquidation for that specific position. The process is as follows:

The position will be frozen, and users will not be able to adjust the position, place new orders, or perform any other operations.
The system will liquidate the isolated position based on the calculated bankruptcy price.

(2) Cross Margin Mode

When the margin ratio in cross margin mode reaches 100% (i.e., the collateral is no longer sufficient to maintain the required margin for all positions), the system will trigger liquidation. The process is as follows:

The corresponding margin account will be frozen. Users cannot deposit, withdraw, transfer, or place/cancel orders.
All open orders are canceled. If the margin ratio drops below 100%, liquidation stops.
Long and short positions of the same contract under the account will be internally matched at the current market price. If the margin ratio drops below 100%, liquidation stops.
If the margin ratio remains at or above 100% after the above operation, the system will liquidate positions one by one based on the bankruptcy price, starting from those with the smallest unrealized P&L, until the margin ratio drops below 100% or all positions have been liquidated.

Reasons why the Est. Liq. Price may change:

Market price fluctuations affect unrealized P&L and margin balance.
Opening new positions or adjusting existing ones will use part of the account balance.
Deposits or withdrawals to/from the account will affect the total assets.
Trading fees incurred when opening or closing positions.
Funding fee settlements, including funding payments.

Notes:

Cross Margin Mode: All USDT-margined contracts share the same margin balance. When the margin ratio hits 100%, liquidation occurs across all positions, even if their estimated liquidation prices differ.
Isolated margin mode: Each position's margin is calculated independently. Only the position whose margin ratio reaches 100% will be liquidated; others remain unaffected.
To reduce unnecessary liquidation, USDT-margined contracts use the mark price as an additional reference. When the system evaluates whether to trigger a liquidation, the maintenance margin ratio must be at or above 100%. Using the mark price helps minimize the risk of a cascade of liquidations caused by abnormal trade prices.

4. Bankruptcy price

The bankruptcy price is the price at which a position's margin is completely exhausted. Once liquidation is triggered, the system will execute a liquidation order at the bankruptcy price.

As the process occurs outside the public order book, the bankruptcy price is not displayed on the candlestick chart and does not represent the actual liquidation price.

5. Insurance fund

Toobit maintains an insurance fund to cover potential losses arising from liquidation:

If liquidation is executed at a better price than the bankruptcy price, the remaining margin is added to the insurance fund.
If the market price falls below the bankruptcy price or a position cannot be liquidated, the insurance fund will cover the resulting loss. If the insurance fund is insufficient or quickly depleted, the Auto-Deleveraging (ADL) mechanism is triggered, reducing opposing profitable positions in sequence to offset the losses.

Example:

User A holds a long position with a liquidation price of 10,100 USDT and a bankruptcy price of 10,000 USDT. When the mark price falls to 10,100 USDT, liquidation is triggered.

If the market rebounds and the position is closed at 10,010 USDT, no deficit occurs — the remaining 10 USDT will be transferred to the insurance fund.
If the market continues to drop and the position is closed at 9,000 USDT, a shortfall of 1,000 USDT occurs. The insurance fund will cover the deficit.

If the insurance fund cannot fully cover the loss, the ADL (Auto-Deleveraging) mechanism will activate. Profitable short positions will be reduced in order of highest return to offset User A's deficit and restore market balance.

6. Examples of liquidation calculations

6.1 Isolated margin mode

In isolated margin mode, each position has its own independent margin. The liquidation price is determined by the average entry price, maintenance margin, unrealized P&L, and current margin.

Formulas:

Isolated Margin Ratio = Maintenance Margin ÷ (Position Margin + Unrealized P&L)
Maintenance Margin = Entry Price × Quantity × Maintenance Margin Rate
Position Margin = Entry Price × Quantity ÷ Leverage
Unrealized P&L (long) = (Mark Price − Entry Price) × Quantity

6.2 Example:

Suppose a user has 1,100 USDT in their account and opens a 10 ETH long position at 4,000 USDT using 50× leverage in isolated mode.

The maintenance margin rate is 1%, and trading fees are ignored.

If ETH drops to 3,962 USDT:

Maintenance Margin = 4000 × 10 × 1% = 400 USDT
Position Margin = 4,000 × 10 ÷ 50 = 800 USDT
Unrealized P&L = (3,962 - 4,000) × 10 = -380 USDT

Isolated Margin Ratio = 400 ÷ (800 - 380) × 100% = 95.24%

Since the margin ratio is below 100%, the position remains safe.

If ETH falls further to 3,955 USDT:

Unrealized P&L = (3,955 - 4000) × 10 = -450 USDT
Isolated Margin Ratio = 400 ÷ (800 - 450) × 100% = 114.29%

Trigger condition:

When the margin ratio reaches or exceeds 100%, the system triggers liquidation.

In this example, the 10 ETH long would be liquidated at a mark price around 3,957 USDT.

6.3 Cross margin mode

In cross margin mode, all positions share the same margin pool. The liquidation risk is calculated based on the account's total margin and unrealized P&L. When the account margin ratio reaches 100%, liquidation is triggered for all cross positions.

Formulas:

Cross Margin Ratio = Σ Maintenance Margin ÷ (Account Balance − Σ Isolated Margin + Σ Unrealized P&L)
Σ Maintenance Margin = Σ (Entry Price × Quantity × Maintenance Margin Rate)
Unrealized P&L (long) = (Mark Price − Entry Price) × Quantity

Liquidation is triggered when the ratio ≥ 100%.

6.4 Single position example

Assume an account balance of 1,100 USDT. The user opens 10 ETH long at 4,000 USDT with 100× leverage. Maintenance margin rate = 1%.

If ETH drops to 3,950 USDT:

Maintenance Margin = 4,000 × 10 × 1% = 400 USDT
Unrealized P&L = (3,950 - 4,000) × 10 = -500 USDT
Margin Ratio = 400 ÷ (1,100 - 500) × 100% = 66.67%

Since the margin ratio is below 100%, the position remains safe.

If ETH drops 3,930 USDT:

Unrealized P&L = (3,930 - 4,000) × 10 = -700 USDT
Margin Ratio = 400 ÷ (1100 - 700) × 100% = 100%

Liquidation is triggered once the margin ratio reaches 100%. The ETH/USDT long position will be liquidated at around 3,930 USDT.

6.5 Multiple positions example

Assume an account balance of 1,100 USDT with the following positions:

ETH/USDT: Entry 4,000 USDT, 5 ETH, 100× leverage, 1% maintenance margin
BTC/USDT: Entry 113,000 USDT, 0.02 BTC, 50× leverage, 1% maintenance margin

Maintenance margin calculation:

ETH: 4,000 × 5 × 1% = 200 USDT
BTC: 11,3000 × 0.02 × 1% = 22.6 USDT
Σ Maintenance Margin = 222.6 USDT

Cross margin ratio:

Margin Ratio = Σ Maintenance Margin ÷ (Account Balance − Σ Isolated Margin + Σ Unrealized P&L)

Liquidation price scenarios:

If BTC price stays at 113,000 USDT, ETH would trigger liquidation around 3,825 USDT
If ETH price stays at 4,000 USDT, BTC would trigger liquidation around 69,130 USDT
If both drop simultaneously, liquidation occurs once the total unrealized P&L pushes the margin ratio ≥ 100%

Notes:

Risk margin details can be found under Contract Information.
The estimated liquidation price in cross mode may change dynamically with unrealized P&L.
Minor calculation discrepancies may occur due to rounding.
Displayed values may differ slightly from backend calculations.
Toobit reserves the right of final interpretation for this product.

If you have any questions, feel free to contact our Customer Support.

This document is for reference only and is not investment, tax, or legal advice, nor an offer to trade digital assets. Crypto assets—including stablecoins—are highly volatile and may result in a total loss of capital. Leverage can amplify both profits and losses, and past performance is not a reliable indicator of future results. Always trade carefully and make decisions based on your own financial situation. You are fully responsible for your trades, and Toobit is not liable for any losses. Some products or promotions may not be available in all regions. For full details, see Toobit's Terms of Service and Risk Disclosure.

Happy Trading

Toobit Team