Tiered Liquidation Explanation of Futures

What Is Liquidation?

When the position’s risk rate reaches 100%, meaning the user’s margin balance falls below the maintenance margin, liquidation will be triggered. Users are advised to monitor their position’s risk rate closely and set up a stop-profit and stop-loss strategy beforehand to prevent liquidation.

Risk Rate Calculation Formula:

Risk Rate = Maintenance Margin / Margin Balance * 100%

Partial Liquidation and Liquidation

FameEX Futures adopts a tiered liquidation mechanism to avoid a one-time liquidation for users with large asset positions.

(1) Cancel Order

In Isolated Margin mode, when liquidation is triggered, the system will cancel all open orders associated with the current position. In contrast, in Cross Margin mode, the system will cancel open orders across all positions.

(2) Self-Traded

In the hedge position mode, if the user holds long positions and short positions of the same symbol, the system will automatically execute the long-short hedging position at the market price. After the transaction is completed, the system will recalculate the risk rate of the position. If the risk rate falls below the 100% threshold, the ongoing liquidation process will be stopped. However, if the risk rate remains greater than or equal to 100%, the system will proceed with the forced liquidation process.

(3) Auto Tiered Deleveraging

According to the position tier system, when liquidation is triggered, and the user’s position is not at the lowest level, the system will attempt to lower the position tier. This involves automatically reducing the position to the upper limit of a certain level in order to decrease the user's position level. This process continues until the risk rate falls below 100%.

If the user’s position is already at the lowest level and the risk rate remains greater than or equal to 100%, that is, the margin balance is still less than or equal to required maintenance margin at the current level, all positions will be liquidated.

If the user only partially reduces the position, thereby lowering their level without triggering a full liquidation, they will retain the remaining positions after this forced reduction.

Insurance Reserve

If a position is liquidated, the system will take over this position and close it. If it is not liquidated, all the remaining funds in the liquidated position will flow into the platform’s insurance reserve. Under the cross margin mode, all the remaining funds in the cross-margin account will flow into the insurance reserve. Under the isolated margin mode, a similar process occurs, with all remaining funds from the isolated account flowing into the insurance reserve.

If a position is liquidated and insufficient to cover, compensation will be made from the platform’s insurance reserve wallet. In the event that the balance in the insurance reserve fund is insufficient to cover new liquidation compensations, profitable positions will be partially stopped from further profiting, and trades will be executed with liquidated positions. Introduction to Auto-Deleveraging (ADL) >>>

Est. Liquidation Price

The estimated liquidation price refers to the estimated price at which the position triggers liquidation, that is, this is a price when the risk rate is equal to 100%. The estimated liquidation price is only for users' reference, because the market price is always floating, and the liquidation will be closed at the bankruptcy price. Therefore, the last price may deviate from the estimated liquidation price.

The calculation for Est. Liquidation Price:

The estimated liquidation price is the price at which the risk rate is 100%. According to the calculation formula of the risk rate.

Risk Rate = Maintenance Margin / Margin Balance * 100%

Therefore, the estimated liquidation price is the latest price at which the margin balance equals the maintenance margin.

Bankruptcy Price

The bankruptcy price refers to the price at which the contract margin balance is equal to zero. When the risk rate reaches 100%, indicating that the margin balance has fallen below the required maintenance margin, this triggers either a tiered deleveraging or a full forced liquidation. In this situation, the system will place a closing order at the bankruptcy price. However, the final transaction price will be determined by the actual prevailing market order at that time.