Know the condition of Margin & Forced Liquidation on BKEX.
This article mainly makes a brief overview of what is margin trading, margin trading system, what is initial/maintenance margin, and how initial/maintenance margin is calculated.
What is a margin?
In the virtual contract market, traders only need to pay a small amount of funds according to the contract price as a financial guarantee for the performance of the contract, and then they can participate in the trading of the contract.
This fund is the virtual contract margin.
BKEX provides traders with a contract transaction of up to 100X, and the maximum loss of a position in the isolated margin mode is only the position margin under this leverage.
What is Margin Trading?
Margin Trading in English is Margin Trading, also known as “deposit” trading, that is, the funds occupied by each transaction are only a certain percentage of the transaction amount of the transaction target.
In recent years, margin trading has become more and more popular because of its high flexibility and low entry standards.
This type of transaction not only provides leverage, but usually allows traders to buy long or short two-way transactions in the futures market, meeting the diverse needs of traders.
Margin trading attracts many investors and arbitrageurs to join in, providing the platform with liquidity and deepening the market depth.
Margin trading includes the concepts of leverage and initial margin.
Example: A
trader conducts margin trading with 1,000 USDT and 5x leverage.
Initial Margin = 1,000USDT
Contract Value = Initial Margin * Leverage = 5,000USDT
Initial Margin Rate = 1/Leverage = 20%
In margin trading, if the margin of a trader’s position is lower than the maintenance margin, the position will be forced Close the position.
What is the margin trading system?
Leverage is a common financial trading system, namely the margin system.
The margin trading system has a certain degree of leverage.
Investors do not need to pay the full amount of the contract value, but only need to pay a certain percentage of margin to trade.
Regardless of the buyer or the seller, they are required to pay a deposit according to the regulations of the exchange where they are located. The deposit is the financial guarantee for the trader to perform the contract. But on the other hand, “leverage” not only enlarges the amount that investors can trade, but also increases the benefits and risks that investors take.
What is entrusted margin?
Entrusted margin is also called initial margin.
Initial margin refers to the initial (initial) margin in leveraged trading, which is the amount of margin that traders need to pay when opening a position.
The initial margin is equal to the order value multiplied by the initial margin ratio, which is determined by the size of the leverage used.
How to calculate the ratio of the initial margin:
The way to calculate the initial margin is to divide the contract value by the leverage.
Assuming that 100 times leverage is used when trading a contract worth 10,000 USDT, traders only need to invest 100 USDT as the initial margin (10,000/100).
Traders can view the maximum leverage allowed for a position through the risk limit table.
Give an example to illustrate the calculation method of the initial margin:
Suppose a trader uses 50 times leverage to buy 10 BTC perpetual contracts at 5,000 USDT.
Initial Margin = Order Quantity * Average Opening Price / Leverage = 10*5,000/50= 1,000USDT
What is Maintenance Margin?
Maintenance Margin is the minimum amount of margin required by a trader to keep their positions from being liquidated.
On BKEX, the basic value of the maintenance margin of the perpetual contract is 0.5%, that is, the basic maintenance margin required to hold a BTC position is 0.5% of the position value.
When the account equity is less than or equal to the maintenance margin, the position will be forced to close.
Give an example to illustrate the calculation method of the maintenance margin:
Suppose a trader uses 100 times leverage to buy 10 BTC perpetual contracts at 5,000 USDT, and the maintenance margin rate = 0.5%.
Initial margin = 10*5,000/100= 500USDT
Maintenance margin = position value * maintenance margin rate = order quantity * opening price * maintenance margin rate = 10*5000*0.5% =
250USDT Forced liquidation will be triggered after an unrealized loss of 250USDT (500USDT – 250USDT).
Traders need to always pay attention to the margin situation of positions.
What is forced liquidation?
Many traders have a certain understanding of digital currency transactions, but they know little about what is forced liquidation, the consequences of forced liquidation, the rules of forced liquidation, and how to effectively avoid forced liquidation to reduce losses.
Forced liquidation means that when the trader’s trading margin is insufficient and has not been replenished within the specified time, or when the trader’s position exceeds the specified limit and the margin cannot meet the maintenance margin requirements of the position, in order to prevent further expansion of risks, forced liquidation The trader’s corresponding position.
Note: Forced liquidation will only be triggered when the mark price reaches the liquidation price.
Margin trading may trigger forced liquidation during the loss process, and once forced liquidation occurs, the trader will lose the margin used for the position.
The most important factor in the liquidation process is the maintenance margin, which is the minimum margin requirement required by the trader to keep the position.
During the loss process, if the remaining margin of the position is equal to or less than the maintenance margin, a forced liquidation will be triggered.
What is the liquidation price?
The liquidation price of a position is calculated based on the maintenance margin ratio, entry price and leverage used. The BKEX platform adopts a reasonable mark price that combines the spot index price.
During the transaction, traders need to pay attention to the distance between the marked price and the position forced liquidation price, as well as the position risk or full position risk, so as to avoid the forced liquidation of the position.
How to avoid forced liquidation?
Traders can also use the built-in options of the BKEX system to avoid or reduce the occurrence of forced liquidation events.
- Increase the margin or reduce the leverage for opening a position: the BKEX platform provides traders with a leverage multiple selection of 1-100X and a margin call function. Traders can increase the margin or reduce the opening leverage to keep the liquidation price away from the reasonable mark price.
- Timely stop loss: Traders can stop loss in time between the forced liquidation price and the opening price, and execute stop loss on loss positions to avoid forced liquidation.
- Pay attention to the position situation: BKEX uses a reasonable price mark method to calculate the maintenance margin required by the account. Margin requirements and position leverage will increase or decrease as the risk limit changes. Traders should check the position information and the risk limit level in time to ensure unnecessary forced liquidation.
Liquidation process
- When the (account balance + unrealized loss) of the contract account is less than or equal to the minimum maintenance margin, the system will cancel all unexecuted orders in the account and trigger the liquidation mechanism.
- The system will sort all positions from high to low according to the maintenance margin rate and close them sequentially. If there are multiple positions under the same maintenance margin rate, the positions will be closed in descending order according to the profit amount.
- The contract cannot be fully liquidated after the forced liquidation is triggered, and the remaining part will directly enter the automatic liquidation system to take over the liquidation process.
Explanation of forced liquidation mechanism
- If the order is in the forced liquidation state, the system will process the position according to the maintenance margin rate from high to low (if there are multiple positions under the same maintenance margin rate, they will be processed in order from large to small according to the profit amount ), the processing method is to submit a FillOrKill (full execution or immediate cancellation) order, and the quantity of this order is the part of the position that exceeds the lower level.
- If the FOK order cannot be executed immediately, it means that the account is already in the state of liquidation, and the insurance account will take over all the positions of the account at the bankruptcy price of each position.
- If the FOK order is completed, the margin will be released to maintain the remaining position. If the account is still in the forced liquidation state, the above forced liquidation process will be repeated until the account is at a safe level. When liquidation reaches the last remaining position, the last position will be taken over at the bankruptcy price, and there is no need to issue a FOK order.
The position liquidation user warning indicates that BKEX will send emails or APP notifications to remind users that their positions are about to be liquidated and margin calls will be made.
BKEX will not notify the above information through SMS, please be sure to bind and pay attention to the email notification, and set the BKEX mailbox as a white list.
Please check BKEX official website or contact the customer support with regard to the latest information and more accurate details.
BKEX official website is here.
Please click "Introduction of BKEX", if you want to know the details and the company information of BKEX.
Comment by Hans
April 24, 2024
as I am trading here various assets, for me it's the most important feature. i mean, flexibility in tradable markets. i alternate trading styles, meaning that sometimes I trad...