Academy Trading Ideas Article

Partial or Full Liquidation

2020.02.27

1. What is Partial Liquidation? 

A Partial Liquidation system is introduced to avoid large amount of liquidation orders due to Full Liquidation impacting the market.

2. Partial Liquidation Rules

For positions at Tier 3 or above (Number of contracts>=30,000, e.g. 30,005), Partial Liquidation occurs when the Margin Ratio is lower than the required Maintenance Margin Ratio (2%). The relevant position will be liquidated until it is at Tier 1. In the above example, the Number of contracts to be closed = Number of contracts held – max Number of contracts acceptable for Tier 1 = 30,005 – 19,999 = 10,006 contracts.

 3. Partial Liquidation-Fixed Margin Mode

For Fixed Margin Mode, liquidation orders will be sent in a price slightly better than market price, force-closing the required number of contracts. During the time, the position will be frozen and cannot be controlled by the user.

About a minute later, if the orders are filled and the Margin Ratio of the remaining position reach the Maintenance Margin Ratio + Liquidation Fee Rate required by the relevant tier, then the remaining liquidation orders will be canceled, and the user’s control over the position is restored.

If the liquidation orders are unfilled or the Margin Ratio of the remaining position does not reach the required Maintenance Margin Ratio + Liquidation Fee Rate, then the unfilled liquidation orders will be canceled. The liquidation procedure will start over again. This process will be repeated until the latest Margin Ratio meets MMR requirement.

 4. Partial Liquidation-Cross Margin Mode

In Cross Margin Mode, if there is only long position or short position, the Partial Liquidation process will be the same as above.

In Cross Margin Mode, if there are both long and short positions, the pairs of long/short positions will be closed immediately. If Margin Ratio reaches the required Maintenance Margin Ratio, liquidation will stop; if it is not reached, the liquidation will continue.

Full Liquidation

1. Full Liquidation

Fixed Margin Mode: When a user’s maintenance margin ratio tier is 2 or below and his maintenance margin ratio falls below the tier’s required level, or when a user’s maintenance margin ratio tier is 3 or above and his maintenance margin ratio is less than the requirement of tier 1, the position will be closed at its bankruptcy price (at which all margins are lost) and taken over by the liquidation engine.

Cross Margin Mode: When a user’s maintenance margin ratio tier is 2 or below and his maintenance margin ratio falls below the tier’s required level, or when a user’s maintenance margin ratio tier is 3 or above and his maintenance margin ratio is less than the requirement of tier 1, the position will be closed at its bankruptcy price (at which all margins are lost) and taken over by the liquidation engine.

2. Insurance Fund

When liquidation is triggered, the liquidation engine will take over the position at the bankruptcy price, and the liquidation profit generated will be injected into the insurance fund.

When liquidation is triggered, margin call loss will first be covered by the insurance fund. If the insurance fund is insufficient to cover the margin call loss, the remaining amount will be socialized with all profiting users of all three contract types (weekly, bi-weekly & quarterly) based on their profit through our clawback mechanism.

  3. Clawback

Clawback: Clawbacks will only occur if the insurance fund does not have enough funds to cover the system’s total margin call losses. Only users that have a net profit for the day will be subject to clawback.

Clawback rate = (system losses + insurance fund) / Total net profit.

Clawback amount for the users who gained net profit = profit from swap x clawback rate.

The clawback amount will be deducted from the profit automatically.

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