A position is subject to liquidation when the position's collateral ratio falls below the collateral ratio maintenance requirement (i.e. 10% or leverage of 10x). As a trader, it is very important to monitor the position's health and make sure that your position is well above the maintenance level.
When your position is liquidated, part or all of your position's collateral will be taken as liquidation penalty. In particular, the liquidation penalty equals to 5% of the liquidation position.
Initial collateral ratio
20% (i.e. leverage of 5x)
Minimum amount of collateral required when opening a position
Maintenance collateral ratio
10% (i.e. leverage of 10x)
Minimum amount of collateral required after a position has been opened. If the collateral ratio falls below 10% (i.e. leverage of 10x) and remains above 5% (i.e. leverage of 20x), the position will be eligible to be liquidated until the collateral ratio increases above maintenance collateral ratio. Positions with a notional value of 0.05 ETH or below will be subject to full liquidation.
If the collateral ratio falls below 5% (or leverage of 20x), the whole position will be liquidated.
Liquidation Price Basis
At Tribe3, liquidations could occur at Futures Price or Oracle Price depending on the spread between the Futures Price and the Oracle Price ("Futures Oracle Price Gap"). Under normal circumstances where the Futures Oracle Price Gap is smaller or equal to 10% on an absolute basis, liquidations occur at Futures Price. However, in the unlikely event that the Futures Oracle Price Gap is bigger than 10% on an absolute basis, liquidations occur at Oracle Price (i.e. leverage ratio and current margin ratio calculated using Oracle Price will be used to test for maintenance margin ratio compliance). This construct ensures that:
Liquidations occur in a timely manner when Futures Price severely lags Oracle price and
Users will not be unfairly liquidated due to Futures Price manipulation
What Should I do To Avoid Liquidation
Trading futures could be risky, especially when leverage is applied or when shorting. To minimise your liquidation risk, you should:
Choose an appropriate leverage level - the higher the leverage, the more likely a position will be liquidated, especially in a volatile market
Do your own research before trading - understand the risk associated with the trade (e.g. underlying assets, collateral pledged, leverage applied etc.)
Monitor your collateral ratio closely - cut loss or increase margin when the collateral ratio approaches maintenance collateral ratio (i.e. 10% or leverage of 10x)