[//]:content-type-MARKDOWN-DONOT-DELETE ## **What is liquidation** In futures trading, liquidation is an essential risk management mechanism designed to protect both users and the platform from potential losses caused by sharp market fluctuations. When a user's account or position margin ratio falls to 100%, liquidation is automatically triggered. The liquidation system takes over the position and follows a stepwise process, which may include canceling open orders and partially or fully closing positions. The process may vary depending on the margin mode (cross or isolated). ## Conditions for triggering liquidation **Cross Margin Mode** Liquidation is triggered when the account maintenance margin ratio (MMR) falls to 100% or below. MMR = Account Margin Balance / Total Maintenance Margin Required for All Positions **Isolated Margin Mode** Liquidation is triggered when the position maintenance margin ratio (MMR) falls to 100% or below. MMR = Position Margin Balance / Maintenance Margin Required for the Position For details on margin calculations, see Initial Margin Calculation and Maintenance Margin Calculation. ## Liquidation process Using cross margin mode as an example: once liquidation is triggered, the liquidation system takes over the affected position and performs the following operations: 1. Cancel all unfilled pending orders. 2. Based on market liquidity and the size of the position, close the position in batches at the bankruptcy price. 3. If the account or position MMR returns above 100% during the process, liquidation stops; otherwise, the process continues until all positions are closed. If market liquidity is insufficient to absorb all reduced positions, the remaining portion will be taken over by the insurance fund at the bankruptcy price. Any surplus from liquidation will be credited to the insurance fund. If the insurance fund cannot absorb all remaining positions, the Auto-Deleveraging (ADL) mechanism will be triggered. For details, see Insurance Fund and Auto-Deleveraging (ADL). ## Factors in liquidation ### Bankruptcy price calculation **Classic Futures – Cross Margin Mode** Long Bankruptcy Price = Mark Price × [1 – (Composite MMR + Liquidation Fee Rate) × Margin Ratio] / (1 – Liquidation Fee Rate) Short Bankruptcy Price = Mark Price × [1 + (Composite MMR + Liquidation Fee Rate) × Margin Ratio] / (1 + Liquidation Fee Rate) **Classic Futures – Isolated Margin Mode** Long Bankruptcy Price = (Average Entry Price – Margin / Contract Multiplier / Position Size) / (1 – Liquidation Fee Rate) Short Bankruptcy Price = (Average Entry Price + Margin / Contract Multiplier ÷ Position Size) / (1 + Liquidation Fee Rate) In the formulas above, the composite MMR refers to the final maintenance margin requirement under the tiered margin system, and the liquidation fee rate is 0.075%. For details on margin ratio calculation, see Maintenance Margin Calculation. ### Liquidation surplus Long Position Liquidation Surplus = (Average Fill Price – Bankruptcy Price) × Number of Filled Contracts × Contract Multiplier Short Position Liquidation Surplus = (Bankruptcy Price – Average Fill Price) × Number of Filled Contracts × Contract Multiplier For examples of liquidation surplus calculation, see Insurance Fund. ## Example A user holds a BTCUSDT Perp position with the following details: | Position Mode | Cross Margin | | :--- | :--- | | Contract | BTCUSDT Perp | | Position | Long 1,000 Contracts | | Current Mark Price | 20,000 USDT | | Account MMR | 100% | | Composite MMR | 0.5% | At this point, since the account MMR is ≤ 100%, liquidation is triggered, and the liquidation system takes over the position. 1. The system first cancels all unfilled pending orders. 2. Calculate the bankruptcy price: BTCUSDT Long Bankruptcy Price = Mark Price × [1 – (Composite MMR + Liquidation Fee Rate) × Margin Ratio] / (1 – Liquidation Fee Rate) = 20,000 × [1 – (0.5% + 0.075%) × 100%] / (1 – 0.075%) ≈ 19,900 USDT 3. Reduce the position: The liquidation system reduces the position in batches at the bankruptcy price based on market conditions and position size. After reducing 600 contracts, the account MMR rises to 105% (>100%), so liquidation ends with 400 contracts remaining.

Liquidation Mechanism

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