Dear WEEXers,
The following text is about forced liquidation process
To minimize customer losses and maintain positions, WEEX utilizes a gradual deleveraging approach for risk management. In the event of a risk, the following steps will be gradually implemented:
- Canceling orders: For isolated margin, only open and close orders for the corresponding trading pair and direction will be canceled. For cross margin, all open and close orders will be canceled, including those for isolated margin
- Offset positions: excluding two-side positions (the two-side portion of all trading pairs, excluding isolated margin positions).
- Deleverage: Reducing the position size by two tiers each time (excluding isolated margin positions).
- Liquidation: Triggering a market order for the remaining position (excluding isolated margin positions).
Please note that once the risk management process is triggered, your trading will be temporarily managed by the risk control engine. The liquidation price will not be reflected in the records or candlestick chart. Once the risk management process is initiated, other operations will be disabled until the process is complete.
Maintenance margin rate
The maintenance margin rate is used to calculate the minimum maintenance margin required by the user to maintain the current positions. When a user’s margin rate falls below or equals the maintenance margin rate, it will trigger forced deleveraging or liquidation.
The calculation formula is as follows:
Margin rate = (Position margin + Unrealized profit and loss) ÷ Position value
Position value = Face value x Quantity x Current mark price
What is auto or forced liquidation and forced closing, also known as liquidation?
Under the cross margin system, when a user’s position moves in the opposite direction of the latest transaction price and the margin rate falls below or equals the maintenance margin rate plus the closing fee rate, liquidation or forced closing will be triggered.
Under the isolated margin system, when a user’s position moves in the opposite direction of the latest transaction price and the margin rate of the position falls below or equals the maintenance margin rate plus the closing fee rate, liquidation or forced closing will be triggered.
When the user’s position is at a higher level, if the margin rate of the position falls below the maintenance margin rate plus the closing fee rate required for the current level, but remains above the maintenance margin rate plus the closing fee rate required for the lowest level, the user’s entire position will not be liquidated immediately. The system will calculate the amount of position reduction needed to decrease the position by two levels and reduce the position partially. After successfully reducing the level, if the margin rate satisfies the maintenance margin rate requirement for the new level, partial liquidation will stop. If it still does not meet the maintenance margin rate requirement for the new level, the partial liquidation process will continue.
When the margin rate falls below the required maintenance margin rate for the current tier plus the closing fee rate, or when the user's position is at a high tier or above, but the margin rate falls below the maintenance margin rate plus the closing fee rate required for a lower tier, the system will directly entrust all contracts (in cross margin mode) or all positions (in isolated margin mode) to the liquidation engine at the bankruptcy price (the price where the margin rate is zero).
This early liquidation process is mainly designed to avoid the adverse effects caused by the rapid fluctuations of cryptocurrencies, which may lead to consecutive liquidations and inability to execute the order after liquidation.
When forced liquidation is triggered, the liquidated position will be taken over by the forced liquidation engine. The user's loss from forced liquidation is equal to the loss incurred when the position's margin ratio reaches zero, and the maximum loss does not exceed the total margin of the liquidated position.
Two-side deleverage
During periods of high market volatility, both isolated and cross margin positions will undergo the step 2 forced liquidation process as described above to maintain the required margin level. When losses reach the margin threshold, the platform system will automatically assess and initiate the position reduction process for two-side positions, allowing the required margin to be maintained and preventing immediate liquidation. This is a standard risk control process automatically implemented by the exchange platform system, further enhancing the protection of user funds.
Thank you for your support of WEEX!
WEEX Team
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