Introduction to Liquidation
Liquidation, often referred to as a margin call, is an automated process that occurs when your account's maintenance margin ratio falls below the required threshold. Specifically, this happens when your maintenance margin ratio reaches 100%, meaning your account equity is equal to or less than the required maintenance margin plus any applicable liquidation fees. The procedure may involve canceling open orders, partially closing positions, or fully liquidating holdings. Different account modes have distinct liquidation processes.
It's crucial to manage your position risk levels and maintain the necessary maintenance margin ratio to avoid liquidation. Some products or services may have unique liquidation rules, so always refer to the specific terms and conditions.
Maintenance Margin Ratio Explained
The maintenance margin ratio represents the amount of collateral you must maintain to keep your positions open. This ratio is influenced by several factors, including your adjusted equity (total account equity after considering unrealized gains or losses) and maintenance margin requirements. These elements can vary based on your account mode and position tier.
In essence, your maintenance margin ratio is not a fixed number. It is expressed as a percentage and adjusts according to your equity, account mode, and position size.
What Is Maintenance Margin?
The maintenance margin requirement is the minimum amount of funds you must hold to sustain your positions. If your adjusted equity drops below this level, you risk being liquidated.
Account Modes and Their Impact
Maintenance margin requirements differ across account modes:
- Isolated Margin Mode: Calculates the maintenance margin requirement separately for each position.
- Cross Margin Mode: Computes the requirement based on the combined risk of all positions.
In Isolated Margin, Spot Cross Margin, and Futures Cross Margin modes, the maintenance margin ratio is calculated by multiplying each position's value by its corresponding maintenance margin rate and summing these amounts. The maintenance margin requirement is the minimum collateral needed for your current positions.
In Portfolio Margin Mode, the maintenance margin is not based on standard requirements but is determined by potential losses under extreme stress-test scenarios.
Position Tiers and Requirements
Larger positions fall into higher tiers, which require more maintenance margin but allow lower leverage. This tiered system helps mitigate platform risk as your positions grow.
- Purpose: Tiered maintenance margin requirements protect market liquidity by preventing large positions from being liquidated abruptly, which could cause significant losses at unfavorable prices.
- Adjustments: Platforms may periodically adjust position tiers to monitor and manage risk. Users are prohibited from using multiple accounts to consolidate positions and bypass tier limits. Violations may lead to position closures.
Here’s how maintenance margin applies to different products:
Futures and Perpetual Swaps
- Isolated Mode: The contract quantity, tier, and maintenance margin rate are calculated separately for each contract direction.
- Cross Mode: All positions in a contract are aggregated to determine the quantity, tier, and maintenance margin rate. For multiple expiries, total contract quantities are summed. For example, holding 1,000 weekly, 500 bi-weekly, 500 quarterly, and 500 bi-quarterly BTC contracts results in a total of 2,500 contracts, placing you in Tier 2.
Leveraged Trading
Maintenance margin rates are based on borrowing amounts within tiered gradients:
- Isolated Margin and Spot/Contract Cross Margin: Refer to "currency pair gradients."
- Multi-Currency Cross Margin and Portfolio Margin: Refer to "currency gradients."
Options
Maintenance margin rates are determined by option contract quantities within tiers. Portfolio Margin accounts in cross mode are exempt (isolated mode applies).
Liquidation Fees and Process Costs
When your maintenance margin ratio hits 100%, automatic liquidation is triggered. During this process, two types of fees may apply:
Liquidation Fee
A fee charged for processing liquidation orders, based on your current fee tier's liquidation rate. For options, this includes the liquidation fee rate plus 12.5% of the option premium.
Liquidation Process Fee
An additional fee covering market volatility impacts, such as slippage and certain liquidation losses. Net proceeds from these fees are deposited into a risk reserve fund, providing user protection.
Fee calculations vary by product:
Spot and Leverage Trading
Fees are calculated in digital assets:
| Account Mode | Formula |
|---|---|
| Isolated Margin | Liability = ABS(Liability Amount) × Pair Gradient Maintenance Margin Rate |
| Spot/Contract Cross Margin | Liability = ABS(Liability Amount) × Pair Gradient Maintenance Margin Rate |
| Multi-Currency/Portfolio Margin | 1. Fees apply to assets/liabilities unless denominated in USDT. 2. Asset-side fees use progressive rates based on tiers. 3. Liability-side fees use tiered maintenance margin rates. |
Futures Contracts
Portfolio Margin mode formulas:
| Type | Formula |
|---|---|
| Coin-Margined | Contract Face Value × Multiplier × Liquidated Contracts / Mark Price × Tier Maintenance Margin Rate |
| USDⓈ-Margined | Contract Face Value × Multiplier × Liquidated Contracts × Mark Price × Tier Maintenance Margin Rate |
Options
Portfolio Margin mode formulas:
| Type | Formula | Notes |
|---|---|---|
| Call Options | C × Margin Coefficient × Liquidated Contracts | C = Configurable Value |
| Put Options | Max (C, C × Option Mark Price) × Margin Coefficient × Liquidated Contracts | C = Configurable Value |
The Liquidation Process Step by Step
The liquidation process varies by account and position mode. When your maintenance margin ratio hits 100%, the platform first cancels or rejects new orders requiring additional margin. It then initiates liquidation, typically taking over liabilities and using risk reserves to liquidate the highest-margin positions. Note that the use of risk reserves is at the platform's discretion and not guaranteed.
Spot and Contract Cross Margin Liquidation
The system settles liabilities based on position tiers, deducts necessary amounts from assets to cover liabilities, and applies liquidation process fees.
Multi-Currency and Portfolio Margin Liquidation
- Non-USDT Liabilities: Settlement starts from the liability side, reducing positions based on liquidity and currency tiers. On the asset side, currencies with the highest applicable discount rates are prioritized.
- USDT Liabilities: Liquidation begins on the asset side, reducing positions from high to low liquidity, considering currency discount tiers.
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Frequently Asked Questions
What triggers liquidation?
Liquidation occurs when your maintenance margin ratio falls to 100%, meaning your account equity no longer covers the required margin plus fees. This can happen due to market moves against your position or increased volatility.
How can I avoid liquidation?
Monitor your margin levels closely, use stop-loss orders, and avoid over-leveraging. Maintaining a buffer above the maintenance margin requirement is crucial, especially in volatile markets.
Are liquidation fees refundable?
No, liquidation and process fees are non-refundable. They cover the costs of executing forced closures and managing market risks during the process.
Does the platform always use risk reserves?
No, the use of risk reserves is discretionary. The platform may cover losses under certain conditions but does not guarantee compensation.
Can I change my account mode to reduce risk?
Yes, switching between isolated and cross margin modes can help manage risk. Isolated margin limits loss to specific positions, while cross margin shares collateral across positions.
What happens if I have multiple position tiers?
Larger positions in higher tiers require more maintenance margin. The system aggregates positions across tiers to determine overall requirements.
This document is for informational purposes only. It does not constitute investment, tax, or legal advice, nor an offer to buy, sell, hold, or engage in services related to digital assets. Digital asset trading involves high risk, including volatility and potential total loss. Leveraged trading amplifies both gains and losses. Past performance does not indicate future results. Assess your financial situation carefully before trading, especially with leverage. You are solely responsible for your trading decisions. Not all products or promotions are available in all regions.
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