What is forced liquidation?
It is commonly referred to as "Margin call." The liquidation of futures is primarily based on the margin rate. When the margin rate of a futures position is ≤100%, a forced liquidation will be triggered. Please refer to the actual trading page for the specific liquidation risk rate, which may vary for different futures trading pairs.
The futures maintenance margin rate refers to the minimum margin rate that must be maintained in a futures trading on the exchange. When a trader's account balance falls below the balance required to maintain the minimum margin rate, the exchange will initiate a forced liquidation to ensure the stability and safety of the futures trading. The futures maintenance margin rate is usually higher than the initial margin rate as it takes into account market fluctuations and the risk of the trader's account. Traders should pay attention to changes in the maintenance margin rate and adjust their positions and margin levels accordingly based on market conditions to avoid forced liquidation of their accounts.
The forced liquidation mechanism is calculated using the following formula:
Margin Rate = (Isolated Margin Balance + Unrealized PNL) / (Position Size * Mark Price * (Maintenance Margin Rate + Taker Fee Rate))
What is the Estimated Liquidation Price?
The estimated liquidation price represents the projected price at which your futures position will be forcibly liquidated when the margin rate of the position is ≤100%. In isolated mode, each position is independent, and the liquidation of one position will not affect the positions of other pairs. This price serves as a reference, and liquidation is based on the risk rate.
Estimated Liquidation Price for Short Position = (Isolated Margin Balance + Position Size * Open Price) / (Position Size * (Maintenance Margin Rate + Taker Fee Rate + 1))
Estimated Liquidation Price for Long Position = (Isolated Margin Balance - Position Size * Open Price) / (Position Size * (Maintenance Margin Rate + Taker Fee Rate - 1))
For example, if a user transfers 10,000 USDT to their trading account and the price of the BTC perpetual futures is 10,000 USDT, they open a long position with 5 BTC at 10x leverage, and the taker trading fee rate is 0.03%. In this case, the user's estimated liquidation price would be calculated as follows:
Estimated Liquidation Price Formula:
Estimated Liquidation Price = (10,000 - 5 * 10,000) / (5 * (5% + 0.003% - 1)) = 8,423.71 USDT.
Insurance Funds
The Insurance Funds are utilized to cover losses resulting from liquidations that were unable to fully close due to insufficient margin. When the system forcefully liquidates a user's position, it takes over the position and executes the liquidation in the market. Profits generated from the liquidation transactions are injected into the corresponding futures' Insurance Funds. The system may transfer assets to the Insurance Funds account during initial trading or special circumstances to increase the capital for risk reserves.
Utilization of the Insurance Funds: In the event of a user experiencing a situation where there are no remaining funds or the position cannot be forcibly closed after liquidation, Aibit will take over the user's remaining position. In such cases, Aibit will utilize the Insurance Funds to execute reverse liquidations, thereby reducing losses incurred by the counterparty due to the liquidation. If the Insurance Funds are insufficient to cover the remaining positions of the forcibly liquidated user, a sharing mechanism will be implemented for allocation.
Sharing Mechanism
When the market experiences significant volatility and a user's position is forcibly liquidated, if the takeover price cannot be executed, resulting in a loss greater than the Insurance Funds, the platform implements a "sharing" system. From the accounts that have realized profits in the current period, the losses from the liquidated positions are proportionally shared among each account based on their respective profits.