Liquidation

Coin8 uses the Mark Price to avoid unnecessary liquidation and to combat market manipulation.

 

1.What is the difference between Mark Price and Last Price?

To avoid spikes and unnecessary liquidations during periods of high volatility, Coin8 Futures uses Last Price and Mark Price.

 

Last Price refers to the latest transaction price the contract was traded at. In other words, the last trade in trading history defines the Last Price. It’s used for calculating your realized PnL (Profit and Loss).

 

On the other hand, Mark Price is calculated using a combination of funding data and a basket of price data from multiple spot exchanges. Your liquidation prices and unrealized PnL are calculated based on the Mark Price.

 

Risk and leverage are adjusted based on the user’s absolute exposure; the larger the position, the higher the required margin, and the lower the leverage. A liquidation is triggered when:

 

Position equity = Position margin+ Unrealized PnL < Maintenance Margin

 

Estimated Liquidation Price Calculation

The liquidation price is the price at which the initial margin minus the position loss equals the maintenance margin.

• Isolated Position Buy: Liquidation Price = Entry Price * (1 + Maintenance Margin Rate) - Margin / Quantity
• Isolated Position Sell: Liquidation Price = Entry Price * (1 - Maintenance Margin Rate) + Margin / Quantity
• Cross Position Buy: Liquidation Price = Entry Price * (1 + Maintenance Margin Rate) - Account Margin / Quantity
• Cross Position Sell: Liquidation Price = Entry Price * (1 - Maintenance Margin Rate) + Account Margin / Quantity

Note: The estimated liquidation price before placing an order is provided for reference only. The actual liquidation price of the position depends on the entry price, unrealized profit and loss, and the position's maintenance margin.

 

 

2.Liquidation Price

Liquidation occurs when the Mark Price hits the liquidation price of a position. Traders are advised to pay close attention to the movements of the Mark Price and the liquidation price to avoid being liquidated.

 

3.What happens during liquidation?

During the liquidation process, all open orders are immediately canceled. All users will be subjected to the same liquidation referred to as “liquidation fee” and transfer into insurance fund. Coin8 avoids full liquidation of a user’s position whenever possible. For any traders that are cleared via forced liquidation and not by an order issued by the user, a liquidation fee will be charged on the amount liquidated only (not the notional value of the position).

 

It is important to mention that, as a general rule, users who hold small positions that enter liquidation are highly likely to be entirely liquidated. Users with larger accounts will see a smaller percentage of their accounts liquidated compared to smaller users. This is because Maintenance Margin is based on a user’s position size and not their leverage selection. As a result, the effective Maintenance Margin for smaller users is lower than the liquidation fee rate. As such, they are already bankrupt when first entering liquidation, regardless of the final price when clearing.

 

4.Liquidation orders

Note that all orders for liquidations are Immediate or Cancel orders. The order will fill as much as possible and cancel the rest. This is different from a Fill or Kill order which will only be executed if the order can be completely executed, and will be canceled, if otherwise. The remaining positions will be either assigned to the Insurance Fund or ADL.

 

The system will first cancel all open orders for all traders, then attempt to reduce the user’s margin usage with one single large Immediate or Cancel order without fully liquidating the user. If the user is margin compliant after accounting for realized losses and liquidation fee deductions, the liquidation is over. If the user is still margin deficient, the user’s position will be closed at the bankruptcy price, and the Insurance Fund will take over the position, and the user is declared bankrupt. 70% (if any) of the remaining assets will be allocated to the insurance fund and 30% will be returned. If the user goes bankrupt (the wallet balance is negative), the insurance fund will pay for it.