Liquidation Protocols

Mark Price vs. Last Price: What's the Difference?

To avoid unnecessary liquidations and combat market manipulation during periods of high volatility, our product uses the Mark Price instead of the Last Price. While the Last Price refers to the latest transaction price at which the contract was traded, Mark Price is a calculated price based on the underlying index price. Mark Price is used to calculate liquidation prices and unrealized PnL, while Last Price is used for calculating PnL.

Risk and Leverage of Our Product

Our product adjusts risk and leverage based on the user's absolute exposure. The larger the position, the higher the required margin and the lower the leverage. A liquidation is triggered when the collateral amount is less than the maintenance margin, which includes Initial Collateral, Realized PnL, and Unrealized PnL. It's important to note that changes in the maintenance margin will directly affect the liquidation price. To avoid liquidation, traders should add more margin or reduce their positions, and keep the margin ratio below 80%.

Liquidation Price on Our Product

Liquidation on our product occurs when the Mark Price hits the liquidation price of a position. Traders should pay close attention to the movements of the Mark Price and liquidation price to avoid being liquidated. In cross margin mode, both long and short positions of the same symbol share the same liquidation price. However, if both positions are in isolated mode, they will have two different liquidation prices depending on the margin allocated to the positions.

What Happens During Liquidation?

During the liquidation process, all open orders are immediately cancelled, and all users are subjected to the same liquidation protocols known as "Smart Liquidation." Our product strives to avoid full liquidation of a user's position whenever possible.

For traders cleared via forced liquidation and not by an order issued by the user, a liquidation fee is charged on the amount liquidated only (not the notional value of the position).

It's important to note that under normal circumstances, users with smaller position sizes are more likely to be fully liquidated during liquidation than those with larger position sizes. This is because the Maintenance Margin is based on a user's position size and not their leverage selection. As a result, the effective Maintenance Margin is lower than the liquidation fee rate for users with smaller position sizes, which can lead to bankruptcy during liquidation regardless of the final clearing price.

Liquidation Orders

All liquidation orders are Immediate or Cancel orders, meaning the order will fill as much as possible and cancel the rest. This is different from a Fill or Kill order, which will only execute if the order can be completely executed, or it will be cancelled. The remaining positions will either be assigned to the Insurance Fund or used for counterparty liquidation.

The system first cancels all open orders and then attempts to reduce the user's margin limit with one large Immediate or Cancel order without fully liquidating the user. If the user is margin compliant after calculating the realized losses and liquidation fee deductions, the liquidation will stop.

If the user is still margin deficient, their position will be closed at the bankruptcy price, and the Insurance Fund will take over the position as the user is declared bankrupt. A portion of the remaining collateral (if any) will go to the Insurance Fund. If an account becomes bankrupt (negative wallet balance), the Insurance Fund will balance the account back to 0.