Overview of Liquidation

Liquidation refers to an event when the Mark Price reaches the Liquidation Price, and the position is closed at the Bankruptcy Price (0% margin price level). This also means that the Position Margin balance falls below the required Maintenance Margin level.

 

For example, the Liquidation Price is 15,000 USD and the current Mark Price is 20,000 USD. When the Mark Price drops to 15,000 USD, it means the Mark Price reaches the Liquidation Price, and the unrealized loss of the position has hit the maintenance margin level. Liquidation will be triggered. 

 

For more information on how to check the Mark Price, please refer here. 

Liquidation Price Calculation

(A) Isolated Margin Mode

The isolated margin mode depicts the margin placed into a position isolated from the trader's account balance. This mode allows traders to manage their risks accordingly as the maximum amount a trader would lose from liquidation is limited to the position margin placed for that open position.

 

Formulas

For Buy/Long:

Liquidation Price (Long) = Contract Quantity / [Position Value + (Initial Margin - Maintenance Margin)]

 

For Sell/Short:

Liquidation Price (Short) = Contract Quantity / [Position Value - (Initial Margin - Maintenance Margin)]

 

Notes:

— Position Value  = Contract Quantity / Average Entry Price

— Initial Margin = Position Value / Leverage

— Maintenance Margin = (Position Value × Maintenance Margin Rate) - Maintenance Margin Deduction

— The Maintenance Margin Rate (MMR) is based on the risk limit tier. For more details please refer to Maintenance Margin (USDT Contracts).

— Minor differences from the actual Liquidation price may arise due to the fees to close the position(s).

Examples

Example 1 (Long):

Trader A placed a long entry of 100,000 USD of BTCUSD long position at 50,000 USD using 50x leverage. Assuming the MMR is 0.5% and no extra margin is added:

 

Position Value = 100,000 / 50,000 = 2 BTC

Initial Margin = 2 / 50 = 0.04 BTC

Maintenance Margin = 2 x 0.5% - 0 = 0.01 BTC

Liquidation Price (LP) = 100,000 / [2 + (0.04 - 0.01)] = 49,261.08 USD

Example 2 (Short):

Trader B placed a long entry of 60,000 USD of BTCUSD short position at 50,000 USD with 10x leverage. Assuming the MMR is 0.5% and no extra margin is added:

 

Position Value = 60,000 / 50,000 = 1.2 BTC

Initial Margin = 1.2 / 10 = 0.12 BTC

Maintenance Margin = 1.2 x 0.5% - 0 = 0.006 BTC

Liquidation Price (LP) = 60,000 / [1.2 - (0.12 - 0.006)] = 55,248.61 USD

Example 3 (Long, funding fee deducted from position margin)

Trader C placed a long entry of 100,000 USD of BTCUSD long position at 50,000 USD using 50x leverage. The initial Liquidation Price is 49,261.08 USD (refer to Example 1 above). However, the trader has incurred 0.01 BTC in funding fees and has an insufficient available balance to cover the funding fees. 

 

When traders have insufficient available balance to cover the funding fees, the funding fees will be deducted from the position margin. Therefore, the decrease in position margin will then move the Liquidation Price nearer to the Mark Price, making the position more prone to be liquidated.

 

The new liquidation price due to the reduction in position margin is now calculated as follows:

Liquidation Price = 100,000 / [2 + (0.04 - 0.01 - 0.01)] = 49,504.95 USD

(B) Cross Margin Mode

Compared to the isolated margin mode, the Liquidation Price under the Cross Margin mode might keep changing as the available balance will be affected by the other trading pairs. Under cross margin mode, the initial margin used for each position is isolated from the account balance but the remaining balance is shared. The available balance will be affected by the unrealized PnL that occurred in all existing positions. Liquidation only happens when there is no available balance and the position does not have enough maintenance margin to maintain the position. 

 

Formulas

Buy/Long:

Liquidation Price (Long) = Contract Quantity / [Position Value + (Initial Margin - Maintenance Margin) + Available Balance]

 

Sell/Short:

Liquidation Price (Short) =  Contract Quantity / [Position Value - (Initial Margin - Maintenance Margin) + Available Balance]

 

Notes:

— Position Value  = Contract Quantity / Average Entry Price

— Initial Margin = Position Value / Leverage

— Maintenance Margin = (Position Value × MMR) - Maintenance Margin Deduction

— The MMR is based on the risk limit tier. For more details please refer to Maintenance Margin (USDT Contracts).

— Minor differences from the actual liquidation price may arise due to the fees to close the position(s).

Example

Trader D opens a long position of 50,000 USD on the BTCUSD Perpetual at an entry price of 25,000 USD using 20x leverage. The trader has an available balance of 0.5 BTC in their account. The MMR is 0.5%.

 

Position Value = 50,000 / 25,000 = 2 BTC

Initial Margin = 2 / 20 = 0.1 BTC

Maintenance Margin = 2 × 0.5% - 0 = 0.01 BTC

Liquidation Price = 25,000 / [2 + (0.1 - 0.01) + 0.5] = 9,652.50 USD