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Liquidation Mechanism
When a position's collateral ratio falls below the collateral ratio maintenance requirement (i.e. 10%), such position will be liquidated automatically by liquidation bots. Hence it's very important to make sure your position is above the maintenance level.
When a position is liquidated, 50% of the residual value of the collateral will be transferred to the liquidation bots as rewards and the remaining 50% will be transferred to the Insurance Fund.
Type | Collateral Ratio | Description |
|---|---|---|
Initial collateral ratio | 20% | Minimum amount of collateral required when opening a position |
Maintenance collateral ratio | 10% | Minimum amount of collateral required after a position has been opened. If the collateral ratio falls below 10% and remains above 5%, the position will first be partially liquidated, where 12.5% of the notional amount will be closed until collateral ratio increases above maintenance collateral ratio. If the collateral ratio falls below 5%, the whole position will be liquidated. After the liquidation event, 5% of the proceeds from the liquidation will be paid out to liquidator and insurance fund as liquidation penalty |
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 collection, 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%)