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Bitunix Futures Liquidation Mechanism and Tiered Risk Limit

  • Updated

To reduce the occurrence of forced liquidation of large positions, and at the same time provide users with higher trading limits. Bitunix futures adopts tiered risk limit for all futures trading.

 

Tiered Risk Limit

Tiered risk limit includes: tiers, nominal value, max leverage and maintenance margin rate. Each tier corresponds to the values of these 4 factors. The risk limit mainly affects two scenarios: order placement and liquidation. Take BTC perpetual contract as an example:

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Liquidation Mechanism

Under tiered risk limit, when a user position is undergoing forced liquidation, before it is fully triggered, the system will withdraw user's current order to release margin. If the position is still within a forced liquidation status after the order is withdrawn, the position will be partially closed to lower the risk limit for trying to retain the user's position.

  • Cross margin mode: during liquidation, the system will check if any open positions has a risk limit > tier 1. If there is any, the system will reduce the position according to the reduction priority, and the system will re-detect the risk of liquidation after each reduction. If all positions are already at tier 1 and liquidation is still triggered, forced liquidation will be executed.
  • Isolated margin mode: during liquidation, the system will check the risk limit tier of the related position. If the risk limit tier is > 1, a cascading position reduction will be executued. After each reduction, the system will calculate the risk of liquidation for the position again. If the risk limit tier is 1, forced liquidation will be executed.

 

Position Reduction Priority of Tiered Risk Limit

  1. Positions with higher risk limit tiers;
  2. Positions with higher release of maintenance margin after reduction;
  3. Positions with higher nominal values.

 

Example of Position Reduction under Tiered Risk Limit

Scenario of opening positions

The risk limit tier of the position is calculated by the leverage the user selects. The value of orders and positions needs to be within the range of the corresponding risk limit tiers. As shown above, when the user is using a 50x leverage for BTC perpetual contract, the risk limit tier will be 3, and the maximum value to possess is 2,500,000 USDT.

 

Scenario of liquidations

The maintenance margin rate will be calculated based on the actual value of the position and order, and corresponds to the risk limit tier, which in turn calculates the current margin rate and the liquidation price.

When liquidation is triggered, the system will automatically cancel open orders to release additional margin. If a liquidation is still triggered, system will check then check if the user's position is at risk limit tier 1. If the user's risk limit tier is 1, the user's position will be partially closed (reduction), thus lowering the user's risk limit tier, and the profit or loss from this part of the reduction will be credited directly into the balance of the user'saccount. If the risk limit tier is 1, the position will be liquidated.

 

If the risk limit tier is already at the lowest tier (tier 1):

  1. Cancel all open orders to release additional margins to save the position.
  2. If it still doesn’t meet the maintenance margin rate requirement, that position will be liquidated.

 

If the risk limit tier is at the second tier or higher:

  1. Cancel all open orders to release additional margin.
  2. The system will initially attempt to lower the risk limit tier, aiming to decrease the maintenance margin rate necessary for the position, while keeping the position unaffected.
  3. If the position is still subject to liquidation (i.e. does not meet the required maintenance margin rate), the system will repeat the process of lowering the risk limit tier. If the risk limit is already at tier 1, the position will be liquidated.

*Notes: To partially close the position, a FOK (Fill or Kill) order will be adopted; if failed, the whole position will be liquidated.

 

Take BTC perpetual contract as an example: If the user holds a position with the value of 5,000,000 USDT and the risk limit tier is 4. When liquidation occurs, the system will reduce the position to lower the risk limit to level 3. Reduced Value = Position Value - Limit Amount of the Original Level, namely 5,000,000 USDT – 2,500,000 USDT = 2,500,000 USDT. The position will be closed at the value of 2,500,000 USDT. After reducing the position, the risk limit tier alters to 3, the maintenance margin rate is updated, and the position returns to normal. However, if liquidation is still triggered, a forced reduction will happen again until the position returns to normal or liquidated.

 

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