To keep open positions, traders are required to hold the Maintenance Margin amount. If a trader failed, so to say, Margin balance = Initial Margin + realized P&L + unrealized P&L < Maintenance Margin amount, the position will be taken over by the liquidation engine and gets liquidated.
Traders shall take notice of the gap between Mark Price and Liquidation price for the open positions. If the contract Mark Price reaches below this price (when long) or above this price (when short), the position will be liquidated and all margin will be lost.
- If the position is on Auto-Deposit Margin mode, system will automatically deposit margin to the position.
- If there is insufficient balance in Futures account, any open order will be canceled on the contract to release the order margin.
- If the Maintenance Margin requirement is not met, the position will be taken over by the liquidation system at bankruptcy price.
Further information on Risk Limit can be found in this Help Center article.
Minimisation of Liquidations
- Traders could reduce the leverage size of their position by adding margins, therefore to keep the liquidation price far away from the Mark Price.
- Traders could have Auto-Deposit Margin mode on. If a liquidation is triggered, the system will cancel any open orders on the current contract to free up margin and maintain the position. Orders on other contracts will not be affected.
For example, if the Initial Margin percentage is 2% and Maintenance Margin percentage is 1%, when a trader long 2 BTC at price 40000 USDT with 50x leverage, the Initial Margin of the position would be 1600 USDT (fees not included) and the liquidation price would be 39600 USDT.
If the trader added 1600 USDT margin to the position, then the leverage of the position becomes 25x and the liquidation price will fall to 38800 USDT.
If the Mark Price drops to 39600 USDT and the trader enables the “Auto Margin Deposit” mode, the system will automatically add 800 USDT to the position and the liquidation price changes to 39200 USDT, therefore again avoiding the position being liquidated.
Please note that Poloniex will notify traders before the liquidation and when liquidation occurs, as a risk reminder. Poloniex is not responsible for the liquidation result if there is a missing or delayed notification due to network issues.
After a position is taken over by the liquidation system, it would be closed at the bankruptcy price. Bankruptcy means traders lose all the margin with 0 balance on the position.
- If the position is closed at a price better than bankruptcy price, the remaining margin will be added to the insurance fund.
- If the position is closed at a price worse than bankruptcy price, the insurance funds will be applied to cover the loss, so the traders’ account won’t fall into a negative balance.
- If the insurance fund is not sufficient to cover the extra loss, the ADL system will be triggered and automatically deleverage the counterparty positions.
Sufficient insurance funds could reduce the possibility of ADL. Traders view the details of Poloniex insurance fund here.