Forced liquidation for perpetual contracts
To maintain a position, traders must hold collateral at a certain percentage of the total value of the position, known as the maintenance margin rate. If a trader fails to meet this requirement, i.e. their position margin < the maintenance margin, the position will enter into liquidation and be taken over by the system.
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.
Liquidation process
- 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.
Measures to reduce risk of liquidation:
- Traders can add margin to lower their leverage and keep the liquidation price further away from the mark price.
Example: Assume the initial margin rate and the maintenance margin rate for a BTC position are 2% and 1%, respectively. If a user places an order with a position size of 0.002 BTC and 50X leverage at the BTC price of 40,000 USDT, the initial margin will be 1.6 USDT (excluding other fees), and the liquidation price, 39,600 USDT.
If the trader manually adds 1.6 USDT as an additional margin, effectively reducing the leverage to 25X, the liquidation price would be lowered to 38,800 USDT.
By employing this method, the probability of being forcibly liquidated can be reduced.
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.