Understanding Liquidation in Futures Trading on LBank

What is Liquidation?

Liquidation occurs when fluctuations in futures prices lead to unrealized profit and loss (PnL), causing the margin balance to fall below the required maintenance margin. To prevent your account balance from dropping below zero, LBank’s system automatically takes over and closes the position.

When Does Liquidation Occur?

Liquidation is triggered when a trader’s margin balance becomes insufficient to meet the maintenance margin, the minimum amount required to keep a futures position open. Key concepts include:

• Insufficient Margin: Liquidation happens when the margin balance falls below the maintenance margin.
• Maintenance Margin: The minimum margin needed to sustain a position. LBank uses a tiered margin mechanism, where the maintenance margin rate varies by leverage tier, with larger positions requiring higher rates.

Formula

• Mark Price: LBank uses the mark price to calculate liquidations, preventing market manipulation and unnecessary liquidations.
• Estimated Liquidation Price: The price at which liquidation occurs.

• • Long Positions: Liquidation occurs when the futures price ≤ Estimated Liquidation Price.
  • Short Positions: Liquidation occurs when the futures price ≥ Estimated Liquidation Price.

Formula

Calculating the Liquidation Price

• Isolated Margin Liquidation Price

Note

• Direction: Long positions = 1; Short positions = -1
• Contract Size: 1 (for most LBank futures contracts)

Example

Calculation

• Cross Margin Liquidation Price

In cross margin mode, all positions share the same margin pool, so liquidation in one position may affect others.

Formula

Note

• Net Position Quantity: Absolute value of (Long Position Quantity – Short Position Quantity)
• Net Position Direction: >0 = 1 (long); <0 = -1 (short)
• Other Futures: Excludes the specified futures pair

Example

*No other cross positions.

Calculation

What Happens During Forced Liquidation?

When liquidation occurs, LBank’s system takes the following actions:

• Cancellation of Open Orders: All open orders for the position are canceled.
• Restriction on Asset Transfers: Assets in the futures account cannot be transferred to other accounts.
• Prohibition of Manual Liquidation: Traders cannot manually close the position during liquidation.

Stepwise Liquidation Mechanism

To reduce market impact, LBank employs a stepwise liquidation mechanism:

• The system incrementally liquidates portions of the position until the margin balance exceeds the maintenance margin.
• If partial liquidation fails, the entire position is closed.
  
  

Key Differences Between Margin Modes

• Isolated Margin Mode:
  • Liquidation only affects the margin of the specific position.
  • Other positions remain unaffected.
    
    
• Cross Margin Mode:
  • All positions share the same margin pool.
  • Liquidation in one position may trigger liquidation in other cross positions.
    
    

Important Notes for LBank Traders

• Cross Margin Risks: Since cross margin positions share the same margin pool, liquidation in one position may impact others. Monitor your margin ratio on LBank’s futures platform.
• Isolated Margin Isolation: Liquidation in isolated margin mode only affects the specific position’s margin, leaving other positions intact.
• Mark Price Protection: LBank’s use of mark price ensures fair liquidation calculations and minimizes unnecessary liquidations.
• Manage Leverage Carefully: Higher leverage increases the maintenance margin rate, raising the risk of liquidation. Use LBank’s tools to adjust leverage and monitor positions.
  
  

⚠️ Note

• In case of translation discrepancies, the English version prevails.