Many traders have a certain understanding of digital currency trading, but they know little about what is forced liquidation, the consequences of forced liquidation, the rules of forced liquidation, and how to effectively avoid forced liquidation to reduce losses. This article The above content will be briefly explained.
What is forced liquidation
Forced liquidation refers to when the trader’s trading margin is insufficient and has not been replenished within the specified time, or when the trader’s position exceeds the specified limit and the margin cannot meet the maintenance margin requirements of the position, in order to prevent further expansion of the risk, compulsory liquidation The corresponding position of the trader. Note: The forced liquidation will only be triggered when the marked price reaches the liquidation price.
Margin trading may trigger the forced liquidation during the loss process, and once the forced liquidation occurs, the trader will lose the margin for the position. The most important factor in the forced liquidation process is the maintenance margin, which is the minimum margin requirement for traders to keep positions. During the loss process, if the remaining margin of the position is equal to or less than the maintenance margin, a forced liquidation will be triggered.
On the Dcoin trading platform, the basic value of the maintenance margin for BTC/USDT, ETH/USDT, LTC/USDT, EOS/USDT, BCH/USDT, XRP/USDT perpetual contracts is 0.5% of the position value. Margin requirements will increase or decrease as the risk limit changes. Traders can check and learn in the risk limit help description.
In Dcoin, the remaining liquidation will be returned to the user
Remarks: Under extreme market conditions, if there is a shortfall or the transaction price is less than the strong parity, it will be returned based on the actual remaining.
What is the liquidation price
The liquidation price of the position is calculated based on the maintenance margin ratio, the entry price and the amount of leverage used. The Dcoin platform uses a reasonable mark price that integrates the spot index price. During the trading process, traders need to pay attention to the distance between the marked price and the position liquidation price, because once the marked price is equal to the liquidation price, the forced liquidation of the position will be triggered.
What is the difference between forced liquidation, liquidation and penetration
Closing a position is an active behavior. To break a position means that the loss exceeds the initial margin amount of the position. When a position is closed, the loss is greater than the margin in your account. Forced liquidation is a measure to prevent your risk from further expanding.
How to avoid forced liquidation
Traders can also avoid or reduce the occurrence of liquidation events through the built-in options of the Dcoin system.
a) Increase margin or lower leverage: Dcoin platform provides traders with 1-100X leverage selection and margin call functions. Traders can increase the margin or lower the opening leverage to keep the liquidation price away from the reasonable mark price.
b) Stop loss in time: Traders can stop loss in time between the forced liquidation price and the opening price, and execute stop loss on losing positions to avoid forced liquidation.
c) Pay attention to the position situation: Dcoin uses the reasonable price marking method to calculate the maintenance margin required by the account. Margin requirements and position leverage will increase or decrease as the risk limit changes. Traders should check position information and risk limit positions in a timely manner to ensure unnecessary liquidation.
a) The Dcoin system will force liquidation of accounts that trigger liquidation conditions with available funds ≤ 0;
b) After the forced liquidation is triggered, the platform will first cancel all unexecuted orders of this symbol in the account;
c) If the margin still does not meet the requirements, the position will be forced to liquidate, and part of the commission will be submitted to the market to close the position with FillOrKill (full transaction otherwise cancelled);
d) If the FillOrKill (all traded or cancelled) order of the contract cannot be executed immediately, the insurance fund will take over all positions of the contract;
e) This position will be filled in by the insurance fund and resubmitted to the market to close the position. If the position can be closed at a better price than the bankruptcy price, then the additional funds will be added to the insurance fund;
f) If the contract cannot be fully liquidated after being taken over, the remaining part will directly enter the automatic lightening system to take over the liquidation process.
The trader who is forced to liquidate will not lose more than the margin he invested in the position, because when the forced liquidation is triggered, the position will be settled at the latest market price on the platform.
In order to maintain the normal operation of the trading platform and make up for the losses caused by the unforeseen risks of the trading platform, the platform establishes an insurance fund and sets a risk reserve in the insurance fund.
If the loss exceeds the initial margin amount of the position, the insurance fund will withdraw the amount of the risk reserve to make up the difference.
If the insurance fund does not have enough balance to cover the loss of the liquidation, then the automatic lightening system will take over the liquidation process.