I. What is Liquidation?
Liquidation occurs when fluctuations in futures prices lead to unrealized Pnl, resulting in insufficient margin balance. To prevent the account balance from falling below zero, the system automatically takes over the position.
II. When Does Liquidation Occur?
- Insufficient Margin: Liquidation happens when a trader's margin falls below the maintenance margin (the minimum margin required to keep the position open).
- Maintenance Margin: The maintenance margin is the minimum margin required to sustain a position. LBank uses a tiered margin mechanism, where the maintenance margin rate varies depending on the leverage tier. Larger positions require higher maintenance margin rates.
- Maintenance Margin Formula:
Maintenance Margin = Mark Price × Futures Quantity × Maintenance Margin Rate (corresponding to the tier).
- Mark Price: LBank uses the mark price to prevent market manipulation and unnecessary liquidations.
- Estimated Liquidation Price: The estimated price at which liquidation occurs is calculated as follows:
- Long Positions: Liquidation occurs when the futures price ≤ Estimated Liquidation Price.
- Short Positions: Liquidation occurs when the futures price ≥ Estimated Liquidation Price.
- Estimated Liquidation Price = Margin Balance – (Maintenance Margin + Liquidation Fee).
III. Liquidation Price Calculation & Examples
1. Isolated Margin Liquidation Price Formula:
Liquidation price = (Direction × Contract size × Position quantity × Entry price - Margin balance) ÷ [Position quantity × (Direction - Liquidation fee rate - Maintenance margin rate)]
- For long positions: Futures direction = 1
- For short positions: Futures direction = -1
- Contract Size = 1
Example:
- Futures Pair: BTCUSDT
- Position: Long
- Position Quantity: 2
- Leverage: 100x
- Maintenance Margin Rate: 0.2%
- Entry Price: 100,000 USDT
- Margin Balance: 3,000 USDT
- Liquidation Fee Rate: 0.06%
Liquidation price calculation:
(1 × 1 × 2 × 100,000 - 3,000) ÷ [2 × (1 - 0.06% - 0.2%)] ≈ 98,756.7
2. Cross Margin Liquidation Price Formula:
Liquidation price = (Wallet balance - Total maintenance margin for other cross positions + Total unrealized PnL of other cross positions - Total liquidation fees for other cross positions - Net position × Net position direction × Entry price) ÷
[Net position quantity × (Maintenance margin rate + Liquidation fee rate - Position direction)]
- Other futures: Excludes the specified futures.
- Net position quantity: Absolute value of (Long Position Quantity – Short Position Quantity).
- Net position direction:
- If >0, direction = 1.
- If <0, direction = -1.
Example:
- Futures Pair: BTCUSDT
- Position: Long
- Position Quantity: 2
- Leverage: 100x
- Maintenance Margin Rate: 0.2%
- Entry Price: 100,000 USDT
- Wallet Balance: 3,000 USDT
- Liquidation Fee Rate: 0.06%
Liquidation price calculation:
(3,000−0+0−0−2×1×100,000) / [2× (0.2%+0.06%-1)] = 98,756.7
IV. What Happens During Forced Liquidation
1. Actions Taken by LBank During Liquidation:
- All open orders will be canceled upon liquidation.
- Assets in the futures account cannot be transferred to other accounts.
- Manual liquidation of the position is not allowed.
2. Stepwise Liquidation Mechanism:
To minimize the impact of liquidation, LBank adopts a stepwise liquidation mechanism. The system liquidates a portion of the position incrementally until the margin balance exceeds the maintenance margin. If this fails, the entire position will be liquidated.
Important Notes:
1. Cross Margin Mode: Since cross margin positions share the same margin pool, liquidation in one position may trigger liquidation in other cross positions.
2. Isolated Margin Mode: Liquidation only affects the margin of the specific isolated position and does not impact other positions.
LBank Community
For any assistance, please contact us at our official email service@lbank.com. We are dedicated to providing quality, professional and prompt support.
Disclaimer: Digital assets are subject to high market risks and price volatility. The value of your investments may fluctuate, and could even lead to a loss of principal. You are solely responsible for your investment decisions, and LBank is not liable for any losses you may incur. You should invest only in products you are familiar with and understand the risks involved. You should carefully consider your investment experience, financial status, investment objectives, and risk tolerance, and consult an independent financial advisor before any investment. Past performance is not a reliable indicator of future performance. Content on the LBank platform does not include advice or recommendations, and should not be construed as financial advice.
LBank reserves the right in its sole discretion to amend or cancel this announcement at any time and for any reasons without prior notice.
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