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.
Initial collateral ratio
Minimum amount of collateral required when opening a position
Maintenance collateral ratio
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%)