Liquidation refers to that when a trader's trading margin is insufficient and has not been made up within the specified time, or when the number of positions of a trader exceeds the prescribed limit, in order to prevent further expansion of risk, the corresponding position of the trader is forced to be closed. Margin trading may trigger forced liquidation in the process of loss, and once the forced liquidation occurs, the trader will lose the margin used for the position. In the process of liquidation, the most important factor is the maintenance margin, that is, the minimum margin required for the trader to keep a position: in the process of loss, if the remaining margin of the position is equal to or less than the maintenance margin, the liquidation will be triggered.
The system of forced price closing & forced position closing:
The forced liquidation price of the position is calculated based on the ratio of maintenance margin, entry price and the leverage used. Deepcoin adopts the market index single price system: the quotation is provided by ICE (the largest exchange in the world) of the US Intercontinental Exchange, which effectively prevents the malicious manipulation of prices and the occurrence of fixed-point position explosion.
In the process of trading, traders need to pay attention to the distance between the latest market price and the position forced closing price, because once the market price equals the forced closing price, the position will be forced to close.
The difference between position closing, liquidation, and bankruptcy:
Closing is active behavior;
Bankruptcy is the loss that exceeds the initial margin of the position;
Liquidation is a mechanism used to prevent your loss risk from further expanding.
How to avoid liquidation:
1) Deepcoin uses the single index price to trigger liquidation, which avoids the situation of being maliciously liquidated when the market is manipulated by the makers or trading platform or the market is in violent turbulence and helps protect the rights of traders.
2) When placing an order, the trader can add a margin (i.e. reduce the leverage) to make liquidation price further away from the index price.
3) Traders can set a stop-loss price between the opening price and the forced liquidation price. When the latest index price reaches the pre-set stop-loss price, the stop-loss order will be executed.
Is liquidation position a total loss? Is there any principal after liquidation?
Deepcoin adopts a stand-alone position model and charges a transaction fee within the price. The trader who is forced to close the position will not lose more than the margin he has invested in the position, because when the liquidation is triggered, the position will be settled with the latest index price on the platform. If the loss exceeds the initial margin amount of the position, the insurance fund will draw a limit to cover the loss. If the insurance fund does not have enough balance to bear the loss, the auto-deleverage system will take over the liquidation process.
The calculation formula of liquidation price is as follows:
Buy Long position: Liquidation Price (LP) = opening price (1-1 / leverage + insurance fund ratio)
Buy Short position: Liquidation Price (LP) = opening price (1 + 1 / leverage insurance fund ratio)
*Note: the liquidation price of Buy Long position will round up the decimal point to 0.5 or integer, while the liquidation price of Buy Short position will round down the decimal point to 0.5 or integer.