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Full Liquidation

2020.03.10 OKEx Academy

Full Liquidation

This system allows us to provide two leverage levels to our users: 10x and 20x. When the user’s margin ratio breaches 10% or 20% (for 10x and 20x leverage), a margin call will be triggered and all the positions will be fully liquidated.

  • Fixed Margin Margin Ratio = (Fixed Margin + UPL) * Avg Price of Open Positions / (Contract Face value * Holding Positions)
  • Cross Margin Margin Ratio = Equity Balance / Position Margin + Withholding Margin of working orders)

Example:

For LTC 10x contract, if the loss has reached 90% of the position margin, a margin call will be triggered. For LTC 20x contract, if the loss has reached 80% of the position margin, a margin call will be triggered.

Full Liquidation Rules

In cross-margin mode: When the latest trading price of a position goes to an unfavourable direction to the user, if his futures account equity is ≤10% of his margin for 10x leverage (=maintenance margin ratio ≤10%) or ≤20% of his margin for 20x leverage (=maintenance margin ratio ≤20%), the position will be forced-liquidated, which is called forced-liquidation. After a position is forced-liquidated, the system will cancel the user’s all unfulfilled orders to release the margin to see if the user’s maintenance margin ratio is still lower than 10% for 10x leverage, or 20% for 20x leverage. If so, the holding position will be taken over by the forced-liquidation engine and closing orders will be placed in the market at a price at which trading efficiency and liquidation profit are maximized based on the latest market depth, basis, bankruptcy price, and index price.

In fixed-margin mode: When the latest trading price of a position goes to an unfavourable direction to the user, if the maintenance margin ratio of his position is ≤10% of his margin for 10x leverage or ≤20% of his margin for 20x leverage, the position will be forced-liquidated and taken over by the forced-liquidation engine. At this stage, the user’s liquidation loss is equal to the loss when his position maintenance margin ratio falls to zero. The maximum loss will not exceed the total margin of the liquidation position. In cross-margin mode, all positions of all contracts will be closed when forced-liquidation is triggered. In fixed-margin mode, only the positions of the liquidation side will be closed when forced-liquidation is triggered. 

When forced-liquidation is triggered, our risk management system will take over all the holding positions. The liquidation loss of the user will be the loss when the maintenance margin ratio equals to 0. At the same time, the risk management system will send a closing order to the market at a price at which trading efficiency and liquidation profit are maximized, based on market liquidity, bid-ask spread, bankruptcy price, and the index price. The closing order will be closely monitored by our system. If the order remains unfilled after a long period of time, our system will re-evaluate the market depth, basis, bankruptcy price, and the index price to create a new closing order until it is fully fulfilled. After force liquidation occurs, the liquidation positions will be separated from the user’s equity balance. If the positions are not fully fulfilled, the loss will be logged as the user’s liquidation loss and will be socialized during delivery. The users will not suffer further losses for the liquidation positions.

The status of the filled and unfilled liquidation orders can be found under the liquidation order list. If the liquidation positions (close long or close short) are filled above the bankruptcy price (maintenance margin ratio=0), premiums will be generated and will be injected to the insurance fund to cover any future societal loss or to settle incidents in futures trading.

If the liquidation positions (close long or close short) are filled below the bankruptcy price (maintenance margin ratio=0) or are not fully-filled during delivery, societal loss will be generated and will be covered by the insurance fund. If the loss cannot be fully-covered, the remaining portion will be subject to a clawback. The loss will be socialized with the profits made among all users of all three contracts.

Liquidation Systems Comparison

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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