What is forced liquidation?
To keep open positions, traders must hold a certain amount of margin, that is, the Maintenance Margin amount.
If a trader fails to hold enough margin to meet the Maintenance Margin requirement, their position will be liquidated. Poloniex adopts Mark Price to avoid forced liquidation caused by lack of liquidity or market manipulation. That is to say, only when Mark Price is below Liquidation Price (in long positions) or above Liquidation Price (in short positions) will your position be liquidated.
When forced liquidation is triggered, your position will be taken over by the liquidation engine and gets liquidated.
Forced liquidation for perpetual contracts
To keep open positions, traders must hold a certain amount of margin, that is, the Maintenance Margin amount. If a trader's Margin balance (Initial Margin + realized P&L + unrealized P&L) < Maintenance Margin amount, their position will be taken over by the liquidation engine and gets liquidated.
Traders should take notice of the gap between Mark Price and Liquidation Price for the open positions. If Mark Price reaches Liquidation Price, the position will be liquidated, and all margins will be lost.
Liquidation Price is calculated based on Maintenance Margin, the average entry price, and the leverage.
- If the position is on Auto-Deposit Margin mode, Poloniex will automatically deposit more margin.
- If the balance in your futures account is insufficient, any open order on the contract will be canceled to release the order margin.
- If the Maintenance Margin requirement is not met, the liquidation engine will take over the position at bankruptcy price.
Further information on Risk Limit can be found in this Help Center article.
How to avoid liquidation
- Traders can reduce the leverage size of their position by adding margins, thus keeping Liquidation Price far away from Mark Price.
- Traders can have Auto-Deposit Margin mode on. In this mode, if liquidation is triggered, Poloniex will cancel any open orders on the current contract to free up the margin and maintain the position. Orders on other contracts will not be affected.
For example, if the Initial Margin percentage is 2% and the Maintenance Margin percentage is 1%, when a trader buys 0.002 BTC at the price of 40,000 USDT per BTC with a 50x leverage, the Initial Margin of the position would be 1.6 USDT (fees not included), and the liquidation price would be 39,600 USDT.
If the trader adds 1.6 USDT to the margin, then the leverage of the position becomes 25x, and the liquidation price falls to 38,800 USDT.
If Mark Price drops to 39,600 USDT and the trader enables the “Auto Margin Deposit” mode, Poloniex will automatically add 0.8 USDT to the margin to prevent the position from being liquidated. Consequently, the liquidation price will fall to 39,200 USDT.
That is how you can reduce the risk of forced liquidation.
Please note that Poloniex will alert traders by email before and when liquidation occurs. Traders are at their own risk for any delayed or missing liquidation alerts caused by their network issues, and Poloniex will not be held liable for any disputes that arise.