Liquidation

Overview

Liquidation occurs when a trader’s Margin Ratio (MR) falls to or below the Maintenance Margin Ratio (MMR). At this point, the system automatically closes all of the trader’s positions to prevent insolvency and protect both the platform and counterparties from losses beyond the trader’s collateral.

If the trader’s margin ratio remains above the MMR but below the Initial Margin Ratio (IMR), they are restricted from opening new positions and may only add collateral or open offsetting (hedging) positions.

The trigger for liquidation is based on the oracle price, ensuring that execution reflects reliable and tamper-resistant market data.

Liquidation Price

The liquidation price represents the point at which a trader’s margin balance has eroded to the maintenance margin threshold, causing the system to initiate forced position closure. In other words, it is the market price at which the Margin Ratio (MR) equals the Maintenance Margin Ratio (MMR)

Liq Price(L)= [ Entry Price * Position Qty - Position Margin- Unsettled Funding ] / (1-MMR)* Position Qty

Liq Price(S)= [ Entry Price * Position Qty - Position Margin- Unsettled Funding ] / (1+MMR)* Position Qty

• Entry Price = average entry price of the position

• Position Qty = quantity of assets in the position

• Position Margin = margin allocated to the position

• Unsettled Funding = accumulated but unsettled funding payments

• MMR = Maintenance Margin Ratio

Bankruptcy Price

The bankruptcy price is the point at which a trader’s account balance is no longer sufficient to cover the minimum margin required for the position, causing position equity to fall to zero.

Difference from Liquidation Price

• The liquidation price is typically set higher (for longs) or lower (for shorts) than the bankruptcy price. It acts as a safeguard, where the system forcefully closes a position before losses can exceed the trader’s margin.

• The bankruptcy price is the absolute limit—if the position is not liquidated in time and the market moves against the trader further, the account equity will fall to zero, resulting in complete loss of the margin.

Bankruptcy Price(L)= (Entry Value - Position Margin - Unsettled Funding)/ Position Qty

Bankruptcy Price(S)= (Entry Value + Position Margin + Unsettled Funding)/ Position Qty

• EntryValue = entry price × position size

Liquidation Premium

Liquidation premium refers to the remaining margin after a position has been forcefully closed during the liquidation process. Liquidation Premium(L)=(Close Price - Bankruptcy Price) * Position Qty

Liquidation Premium(S)=(Bankruptcy Price - Close Price) * Position Qty

• Close Price = platform’s actual liquidation price

• Bankruptcy Price = price at which the position equity reaches zero

Handling of Liquidation Premium

• If Liquidation Premium > 0: the entire amount is transferred to the Insurance Fund account that assumes control of the liquidated position.

• If Liquidation Premium = 0: losses are exactly covered, leaving no remainder.

• If Liquidation Premium < 0: the position enters bankruptcy (negative equity). In this case, the system invokes the internal resolution process, which may involve the Insurance Fund or trigger the Auto-Deleveraging (ADL) mechanism.