8 months ago

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Welcome to MCS, the world-class derivatives trading platform where traders ALWAYS come first.

Today's topic is "Liquidation".


Have you heard of 'Liquidation'?

Is it a scary word you've only seen in movies? There are slightly different meanings for liquidation in futures exchange like MCS.


Unlike Spot, Why is There a Liquidation in Futures?

Unlike spot, there is a concept of leverage in futures trading. Using leverage means that the trader can trade more than he or she has. To put it simply, the exchanges lend money to traders. In futures trading, the concept of lending money differs from the spot, and liquidation exists. Therefore, the liquidation is needed to recover the principal when the value of the position decreases.  


Liquidations in terms of Futures,

When a trader is forced to close a position because of his/her failure to meet a condition.

Why Does Liquidation Take Place?

You might think "is the exchange justified to close my position?”, but the liquidation can also prevent traders from more losses. In the second case, different liquidation processes are followed depending on the type of order.

Liquidation of the Isolated Margin and Cross Margin

The liquidation process for isolated and cross margin is as follows.

<Isolated Margin Liquidation Process>
  1. When the Mark Price reaches the liquidation price, the position is taken over by the liquidation engine.
  2. The liquidation engine takes the position and liquidates the position to the bankruptcy price.

Reduce risk limit and carry out liquidation process step by step.

<Cross Margin Liquidation Process>

Cross margin secures margin to delay liquidation in the following ranks. The position is liquidated when all four ranks are progressed.

#1 Available Balance

#2 Reduce Risk Limit Level

#3 Cancel all Active Orders in the same direction

#4 Cancel all Active Orders in other directions


More Details of Liquidation

A liquidation is determined by the leverage and margin of the position. To open and maintain a position, a trader needs the collateral needed to open the position, and a minimum margin to maintain the position. This plays an important role in deciding whether to liquidate or not. Let's take an example of the long position of the isolated margin.

<Isolated Margin Liquidation Price Equation>

Long - Liquidation Price

$$ \text{Isolated Margin Liquidation Price (Long)} ={{\text{Avg. Entry Price} \times \text{Leverage}} \over \text{Leverage(1 - Maintenance Margin Rate) + 1}} $$


<Isolated Margin Liquidation Price (Long) Example>

David goes long 10x @2000 USDT

$$ \text{Isolated Margin Liquidation Price (Long)} ={{\text{2000} \times \text{10}} \over \text{10(1 - 0.005) + 1}} $$

$$ \text{Isolated Margin Liquidation Price (Long)} ≈ \text{1,826.48 USDT} $$


We hope you to realize an even higher profit by applying a good liquidation strategy.


MCS will consider traders at the first.

Thank you.


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Published 8 months ago