Forced Liquidation Explanation
1. What is Forced Liquidation?
To maintain a position, investors must hold a certain percentage of the position value as margin, known as the Maintenance Margin.
When your position margin falls below the required maintenance margin, the contract will be forcibly liquidated.
- For long positions, liquidation occurs when the mark price is lower than the liquidation price.
- For short positions, liquidation occurs when the mark price is higher than the liquidation price.
2. Liquidation Price
The liquidation price is the trigger price at which forced liquidation occurs.
- If the mark price is below this price (long) or above this price (short), the contract will enter the liquidation process.
Calculation Formula (USDT-M contracts as an example):
Isolated Margin Mode (USDT-M):
- Long:
Entry Price – (Position Margin – Maintenance Margin – Fees) ÷ Position Size - Short:
Entry Price + (Position Margin – Maintenance Margin – Fees) ÷ Position Size
Cross Margin Mode (USDT-M):
- Long:
Entry Price – (Account Balance – Maintenance Margin – Fees) ÷ Position Size - Short:
Entry Price + (Account Balance – Maintenance Margin – Fees) ÷ Position Size
3. Risk Management Tips
- Monitor Market Volatility: Pay close attention during high volatility periods to avoid unexpected liquidation risks.
- Set Stop-Loss Orders: Use stop-loss to limit potential losses and prevent forced liquidation.
- Utilize Risk Control Tools: Take advantage of tools like isolated mode, cross mode, and auto-reduction to better manage positions and risks.