What is Forced Liquidation？
BitForex uses Exposure ratio to judge a user's position risk while Margin trading allows users to add leverage to increase earnings and profits
Exposure ratio= (Maintenance Margin / Account Asset) * 100%
The Exposure ratio is used as an indicator to measure the risk of a user's trades. When the Exposure ratio reaches 100%, that is, the account balance is equal to the maintenance margin, the position will be Forced to Liquidate by the system.
Tiered Margin Ratio System：
BitForex Tiered Margin Ratio System is adopted to avoid the liquidation of large positions, causing big impact on market liquidity. Basically, the larger the positions held, the lower the Leverage will be available, and the higher Initial Margin Ratio will be required. Learn more click here.
Estimated Forced Liquidation Price：
Estimated Forced Liquidation Price is the marked price when the Maintenance Margin=Account Asset (This price is for reference only)
The position will be Forced to Liquidate by the system at the Bankruptcy Price when the Account Asset is equal or less than the Maintenance Margin. Liquidated position at the Bankruptcy Price will not be process though the matching system and the Bankruptcy Price will not be shown on the Market Chart.
* Bankruptcy Price is not the same as the actual Forced Liquidation Price.
Forced Liquidation Price:
- BitForex Perpetual Contract Trade operates under the Cross Margin Mode, all available asset in a user's account will be used to offset the realized losses. When the mark price changes to an unfavorable direction from the user's position, the available balance (referring to the available balance of the user’s BitForex Perpetual Contract Account) will be used preferentially to offset the unrealized loss.
- When the available Balance ≤ maintenance margin (the mark price falls to liquidation price), the position will be liquidated by the liquidation engine at the bankruptcy price.
- If the liquidation engine successfully closes the position at a better price than this position’s bankruptcy price, the additional funds will be sent to the insurance fund.
- If price volatility gets too high and the final execution price is worse than its bankruptcy price, the insurance fund will be used to cover the contract loss. If this still does not close the liquidated order, this will then trigger the automatic deleveraging system.
John's account balance is 0.55 BTC.
John is long 50,000 BTC/USD contracts with an average entry price of $11,000 at 100X Leverage.
What would happen to John's position when the BTC Marked Price fell to $10,600 without considering the fees?
1. John's Initial Margin and Maintenance Margin
- Initial Margin = Order Value * Initial Margin Ratio = （50000*1/11000）*10% ≈ 0.454545
- Maintenance Margin = Position Value * Maintenance Margin Ratio = （50000*1/11000) * 0.5% ≈ 0.02272727
2. John's Unrealized PNL：
- Unrealized PNL = Cont. * (1 / Position Average Price - 1 / Marked Price)
- 10000*（1/11000-1/10600）≈ -0.03430532
3. Will John's position be processed under Forced Liquidation？
- Account Asset = 0.05-0.03430532=0.01569468＜ 0.02272727 (Maintenance Margin)
- Exposure ratio = (Maintenance Margin / Account Asset) * 100% = (0.02272727/0.01569468)*100%≈144.81%≥100%
- John's position has already been Forced to Liquidate when BTC Marked Price is $10,600.
4. When will John's position be Forced Liquidated？
- The position will be Forced Liquidated, when the Account Margin Available is equal to or less than the Maintenance Margin.
- Let's set Forced Liquidation Price as x and calculate the price:
- ( 1 / 11000 - 1 / x ) * 10000 * 1= -0.05+0.02272727 BTC
- x ≈ 10,679.6116
- John's position will be Forced Liquidated at the price of 10,679.6116 USD.
5. What happens after John's position is Forced Liquidated？
- The price that closed John's position is the Bankruptcy Price, not the marked price when the position was Forced to Liquidate.
- Bankruptcy Price Calculation is as below:
- x represent the Bankruptcy Price
- ( 1 / 11000 - 1 / x ) * 10000 * 1= -0.05 BTC
- x ≈ 10,426.5403 USD
- John's position will be Forced Liquidated when the Marked Price reaches to the Forced Liquidation Price of 10,679.6116 USD at the Bankruptcy Price of 10,426.5403 USD and Bankruptcy Price will not be shown on the Market Chart.