1. What is Forced Liquidation?
To maintain a position, investors must hold a certain proportion of margin relative to the value of their position, known as the maintenance margin. When the margin for your position falls below the required maintenance margin, the position will be forcibly liquidated. Specifically, a position will be forcibly liquidated if the mark price falls below the liquidation price for long positions or rises above the liquidation price for short positions.
2. Liquidation Price
The trigger price for forced liquidation. If the mark price of the contract falls below this price (for long positions) or rises above this price (for short positions), the liquidation process will be triggered.
1. Calculation Formula (Example: USDT-Margined Contracts):
For isolated margin mode:
• Long Position Liquidation Price:
(Position Value-Position Margin-Maintenance Margin-Position Fees)/ Position Size
• Short Position Liquidation Price:
(Position Value+Position Margin-Maintenance Margin-Position Fees) / Position Size
For cross margin mode:
• Long Position Liquidation Price:
(Position Value-Account Balance-Maintenance Margin-Position Fees) / Position Size
• Short Position Liquidation Price:
(Position Value+Account Balance-Maintenance Margin-Position Fees) / Position Size
Mitigation Measures:
• Monitor Market Fluctuations: Investors should closely monitor market fluctuations, especially during high volatility periods, to understand risks that may cause deviations in the liquidation price.
• Set Stop Losses: Use stop-loss functions to limit losses and reduce the risk of forced liquidation. Setting reasonable stop-loss prices can help prevent large losses due to deviations in the liquidation price.
• Utilize Risk Control Tools: Platforms provide risk control tools such as isolated margin mode and cross margin mode, as well as gradual position reduction, which can help users manage positions and risk more effectively during market fluctuations.
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