"Forced liquidation" refers to the process where a trader's assets are automatically sold to repay debts or meet margin requirements. In the cryptocurrency trading space, this typically occurs when users trade with leverage, also known as margin trading. If the value of the investment drops significantly, the platform or lender will sell the trader's assets to prevent further losses and recover the borrowed funds. This ensures that the lender is protected from potential defaults.
The forced liquidation process can be slow or rapid, depending on the leverage used in the trade.
Key Points About Forced Liquidation:
Forced Liquidation Using Mark Price
JuCoin uses the mark price method to avoid forced liquidation caused by lack of liquidity or market manipulation.
Leverage Tiering Requires Higher Margin Levels for Larger Positions
When positions are large, triggering forced liquidation may pose risks of unsafe liquidation, potentially impacting the market. JuCoin's liquidation engine can use more margin to effectively liquidate large positions.
If forced liquidation is triggered, JuCoin will cancel all open orders for the contract to release margin and maintain the position.
JuCoin uses a partial liquidation method to gradually close positions, which automatically attempts to reduce maintenance margin requirements and avoid full-position liquidation.
In Isolated Margin Mode, only the funds occupied by the specific contract are used as position margin.
Forced liquidation in Isolated Margin Mode occurs when: Account Real Margin ≤ Liquidation Fee
Liquidation Price Calculation Formula:
Estimated Liquidation Price (Long): (Average Entry Price * Quantity * Face Value + Maintenance Margin - Position Margin) / (Quantity * Face Value)
Estimated Liquidation Price (Short): (Average Entry Price * Quantity * Face Value - Maintenance Margin + Position Margin) / (Quantity * Face Value)
In Cross Margin Mode: All available funds are used as position margin. However, note that in Cross Margin Mode, the user's available balance from losses will not serve as margin for other cross-margin positions.
Forced liquidation in Cross Margin Mode occurs when: Σ(Position Margin + PNL) + dex ≤ ΣMaintenance Margin
Liquidation Price Calculation Formula:
Estimated Liquidation Price (Long): (Average Entry Price * Quantity * Face Value - dex) / (Quantity * Face Value)
Estimated Liquidation Price (Short): (Average Entry Price * Quantity * Face Value + dex) / (Quantity * Face Value)
Note: Forced liquidation is an irreversible process, and traders have no control over its execution time or price. This may result in additional losses for traders, especially during periods of high market volatility.
Therefore, when engaging in cryptocurrency trading, traders should fully understand the meaning, triggering conditions, and potential risks of forced liquidation. By managing position risks appropriately, setting stop-loss orders, and replenishing margin in a timely manner, traders can minimize the negative impact of forced liquidation and ensure their trading safety.