Introduction for Liquidation
Liquidation:
Liquidation refers to the process that occurs when a trader's trading margin is insufficient and has not been replenished within the specified time, or when the number of positions held by a trader exceeds the prescribed limit. To prevent further expansion of risk, the corresponding position of the trader is forced to be closed. Margin trading may trigger forced liquidation during losses, and once forced liquidation occurs, the trader will lose the margin used for that position. The most important factor in the process of liquidation is the maintenance margin, which is the minimum margin required for the trader to keep a position open. If the remaining margin of the position is equal to or less than the maintenance margin during a loss, liquidation will be triggered.
The System of Forced Price Closing & Forced Position Closing:
The forced liquidation price of a position is calculated based on the ratio of maintenance margin, entry price, and the leverage used. Global HibtHub adopts a 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 malicious manipulation of prices and the occurrence of fixed-point position explosions.
In the trading process, traders need to pay attention to the distance between the latest market price and the position's forced closing price. If 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 an active behavior by the trader.
- Bankruptcy refers to the loss that exceeds the initial margin of the position.
- Liquidation is a mechanism used to prevent further expansion of the loss risk.
How to Avoid Liquidation:
- Global HibtHub uses a single index price to trigger liquidation, which helps avoid malicious liquidation during market manipulation by market makers or trading platforms, or during periods of violent market turbulence, thereby protecting the rights of traders.
- When placing an order, the trader can add a margin (i.e., reduce the leverage) to position the liquidation price further away from the index price.
- 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 a Liquidation Position a Total Loss? Is There Any Principal After Liquidation?
Global HibtHub adopts a stand-alone position model and charges a transaction fee within the price. A trader who is forced to close a position will not lose more than the margin they have invested in that position. When liquidation is triggered, the position will be settled at the latest index price on the platform. If the loss exceeds the initial margin amount of the position, the insurance fund will cover the loss up to a certain limit. If the insurance fund does not have enough balance to cover 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 for Buy Long positions will round up the decimal point to 0.5 or an integer, while the liquidation price for Buy Short positions will round down the decimal point to 0.5 or an integer.