Many traders have a certain understanding of digital token trading, but they have little knowledge about what is forced liquidation, the consequences of forced liquidation, the rules of forced liquidation, and how to effectively avoid forced liquidation to reduce losses. This article The above will be briefly explained.
I. What is forced liquidation?
In English it is Forced Liquidation, also known as liquidation closeout or blasting liquidation. Forced liquidation means that when the trader's trading margin is insufficient and is not made up within the specified time, or when the trader's position exceeds the specified limit and the margin cannot meet the maintenance margin requirement of the position, in order to prevent the risk from further expansion, the forced liquidation is forced to close. The trader's corresponding position.
Note: The forced liquidation will only be triggered when the mark price reaches the liquidation price.
Margin trading may trigger forced liquidation during the loss process, and once the forced liquidation occurs, the trader will lose the margin used for the position. The most important factor in the liquidation process is maintenance margin, which is the minimum margin requirement that a trader needs to keep a position. During the loss process, if the remaining margin of the position is equal to or less than the maintenance margin, a forced liquidation will be triggered.
II. What is a liquidation price?
The liquidation price of a position is calculated based on the maintenance margin ratio, the entry price and the amount of leverage used. The BKEX platform adopts a reasonable mark price that combines the spot index price. During the trading process, traders need to pay attention to the distance between the mark price and the liquidation price of the position, as well as the risk degree of the position or the risk degree of the whole position, so as to avoid the forced liquidation of the position.
III. How to avoid forced liquidation
Traders can also avoid or reduce the occurrence of liquidation events through the built-in options of the BKEX system.
a) Increase the margin or reduce the opening leverage: The BKEX platform provides traders with 1-100X leverage multiple options and margin call functions. Traders can make the liquidation price far away from the reasonable mark price by increasing the margin or reducing the opening leverage.
b) Timely stop loss: Traders can stop loss in time between the liquidation price and the opening price, and execute stop loss on losing positions to avoid forced liquidation.
c) Pay attention to position situation: BKEX uses the reasonable price marking method to calculate the maintenance margin required for the account. Margin requirements and position leverage will increase or decrease with the change of the risk limit. Traders should check the position information and the risk limit level in time to ensure unnecessary liquidation.
IV, Forced liquidation process
a) When the (account balance + unrealized loss) of the contract account is less than or equal to the minimum maintenance margin, the system will cancel all unexecuted orders in the account and trigger the liquidation mechanism.
b) The system will close all positions in descending order of the maintenance margin rate. If there are multiple positions under the same maintenance margin rate, the positions will be closed in descending order according to the profit amount.
c) The contract cannot be fully closed after the forced liquidation is triggered, then the remaining part will directly enter the automatic liquidation system to take over the forced liquidation process.
V. Description of forced liquidation mechanism
a) If the order is in a forced liquidation state, the system will process the positions with the maintenance margin rate from high to low (if there are multiple positions under the same maintenance margin rate, they will be processed in descending order of the profit volume), and the processing method is to submit FillOrKill (full execution or immediate cancellation) order, the amount of this order is the part of the position that exceeds the lower level.
b) If the FOK order cannot be executed immediately, it means that the account has been in a state of overrun, and the insurance account will take over all the positions of the account at the bankruptcy price of each position.
c) If the FOK order is filled, the margin will be released to maintain the remaining position. If the account is still in a forced liquidation state, the above forced liquidation process will be repeated until the account is at a safe level. When liquidated to the last remaining position, the last position will be taken over at the bankruptcy price without issuing a FOK order.
Position forced liquidation user warning instructions
BKEX will notify users that the position is about to be liquidated and the margin call notification will be sent by email or APP. BKEX will not notify the above information through SMS, please be sure to bind and pay attention to the email notification, and set the BKEX mailbox as a whitelist.