- What is liquidation
In AlphaX futures trading, liquidation is an automatic risk management mechanism designed to prevent excessive risk exposure in user accounts. When a position's margin ratio reaches 100%, the system will trigger liquidation to partially or fully close the position to prevent further losses.
- Estimated liquidation price
The estimated liquidation price refers to the price when the margin ratio reaches 100% (this price is for investor reference only). The actual liquidation price is based on the price when the margin ratio is ≥ 100%. The lower the margin ratio, the lower the relative risk of the position.
Margin ratio: An indicator used to measure the risk level of a position.
A higher margin ratio indicates insufficient account equity and higher position risk.
A lower margin ratio means the position is relatively safer.
Users are advised to closely monitor margin ratio changes and regularly check email, in-site messages, and SMS notifications to avoid liquidation.
Margin ratio calculation:
Isolated margin ratio = Maintenance margin for the isolated position / (Isolated position margin + Unrealized PnL of the isolated position)
Cross margin ratio = Total maintenance margin of all cross margin positions / (Account equity - Total margin used by isolated positions + Total unrealized PnL of cross margin positions)
Notes:
The maintenance margin for cross margin positions is calculated based on position data and open orders.
Maintenance margin is the minimum margin required to maintain a leveraged position. It increases as position amount increases.
- Liquidation process
In AlphaX futures trading, the liquidation process varies between isolated margin mode and cross margin mode, as follows:
1. Isolated margin mode
When the margin ratio reaches 100% (i.e., the position margin is insufficient to cover the maintenance margin), the system will trigger liquidation. The process is as follows:
The position will be frozen. Users will not be able to add or reduce margin, place orders, or perform other operations.
The system will liquidate the position based on the bankruptcy price.
2. Cross margin mode
When the margin ratio reaches 100%, indicating that account equity is no longer sufficient to meet the maintenance margin requirement for cross margin positions, the system will trigger liquidation. The process is as follows:
The corresponding margin account will be frozen. Users will not be able to deposit, withdraw, transfer, place or cancel orders.
All open orders under the account will be canceled. If the margin ratio drops below 100%, the liquidation process will stop.
The system will offset opposing long and short positions of the same product at the current market price. If the margin ratio drops below 100%, the liquidation process will stop.
If the margin ratio remains ≥100% after the above operations, the system will trigger liquidation based on the bankruptcy price. Positions will be liquidated in order of unrealized PnL from lowest to highest, until the margin ratio falls below 100% or all positions are fully closed.
Reasons for changes in the estimated liquidation price
Market price fluctuations lead to changes in unrealized PnL.
Opening a new position or adjusting an existing position will require account funds.
Asset transfers affect total account assets.
Trading fees incurred by opening and closing positions.
Settlement of funding fees (including payment of funding fees).
- Notes:
(1) Cross margin mode: All USDT-margined contract share the margin in the cross margin account. When the margin ratio reaches 100%, all contract positions will be liquidated simultaneously, even if the estimated liquidation prices for different trading pairs are different.
(2) Isolated margin mode: Each contract's margin is calculated independently and positions do not affect each other. As long as any position's margin ratio reaches 100%, that position will be liquidated, while other positions are not affected.
(3) To avoid unnecessary liquidation, USDT-margined contracts use the mark price as the reference price. The system uses the mark price to determine liquidation triggers and reduce the risk of cascading liquidations caused by abnormal fill prices.
- Bankruptcy price
The bankruptcy price is the price at which the remaining margin is just enough to cover the estimated liquidation fee. After a contract triggers liquidation, the system will place orders to close the position at the bankruptcy price. Since the liquidation process does not use the matching system, the bankruptcy price will not be displayed on the candlestick chart and is not equal to the actual liquidation price.
- Risk insurance fund
The risk insurance fund is used to cover losses incurred from liquidation, as follows:
Market price better than bankruptcy price: If the actual fill price is better than the bankruptcy price, the remaining margin will be transferred to the insurance fund.
Market price worse than bankruptcy price: If the fill price is below the bankruptcy price or the position cannot be executed, the loss will be covered by the insurance fund. When the insurance fund is insufficient or depleted, the system will trigger auto-deleveraging (ADL).
Example:
Suppose user A holds a long position. The liquidation price is 10,100 USDT. When the mark price drops to this level, liquidation is triggered. If the bankruptcy price of that position is 10,000 USDT, the system will close the position at the bankruptcy price.
If the market price rebounds and the fill price is 10,010 USDT, your account will not go into a negative balance. The difference (10 USDT) will be transferred to the insurance fund.
If the market price continues to fall to 9,000 USDT and the fill price is 9,000 USDT, a loss of 1,000 USDT will be incurred. The platform will first utilize the insurance fund to cover losses. If the insurance fund is insufficient, the system will initiate auto-deleveraging (ADL). Profitable short positions will be deleveraged in sequence and matched against user A's negative position to reduce overall market risk exposure.
- Liquidation example
1. Liquidation price in isolated margin mode
In isolated margin mode, the margin for each position is calculated independently. The liquidation price depends on the average open price, maintenance margin, unrealized PnL, and current margin.
Formula:
Isolated margin ratio = Maintenance margin for the isolated position / (Isolated position margin + Unrealized PnL of the isolated position)
Isolated maintenance margin = Open price * Size * Maintenance margin ratio
Isolated position margin = Open price * Size / Leverage
Unrealized PnL (long) = (Mark price - Open price) * Size
2. Liquidation in isolated margin mode
Suppose the user account balance is 1,100 USDT. When ETH/USDT is priced at 4,000 USDT, the user opens a long position of 10 ETH with 50x leverage in isolated margin mode.
The maintenance margin ratio is 1%, not considering trading fees.
When the ETH price drops to 3,962 USDT, the position changes as follows:
Calculation:
Isolated maintenance margin = 4,000 * 10 * 1% = 400 USDT
Isolated position margin = 4,000 * 10 / 50 = 800 USDT
Unrealized PnL (long) = (3,962 - 4,000) * 10 = -380 USDT
Margin ratio calculation: Margin ratio (isolated) = 400 / (800 - 380) * 100% = 95.24%
Now, the margin ratio is 95.24%, which has not reached 100%, the position can still be maintained.
However, when the price drops to 3,955 USDT:
Unrealized PnL (long) = (3,955 - 4,000) * 10 = -450 USDT
Margin ratio (isolated) = 400 / (800 - 450) * 100% = 114.29%
Liquidation condition: When the margin ratio ≥ 100%, the system will trigger liquidation. Therefore, when the mark price is approximately 3,957 USDT, the ETH/USDT long position will be liquidated.
3. Liquidation price in cross margin mode
In cross margin mode, all positions share margin, and the risk is calculated based on the total margin and unrealized PnL.
When the account margin ratio reaches 100%, the system will trigger liquidation and liquidate all cross margin positions.
Calculation:
Cross margin ratio = Σ Maintenance margin for the cross position / (Account equity - Σ Isolated position margin + Unrealized PnL of the cross position)
Σ Cross maintenance margin = Σ (Open price of each cross margin position * Position size * Maintenance margin ratio)
Unrealized PnL (long) = (Mark price - Open price) * Size
When the calculation result is ≥ 100%, the system will execute liquidation.
4. Liquidation in cross margin mode (single position)
Suppose the user account balance is 1,100 USDT, and the current ETH/USDT price is 4,000 USDT. The user opens a long position of 10 ETH with 100x leverage, with a maintenance margin ratio of 1%.
When ETH drops to 3,950 USDT:
Cross maintenance margin = 4,000 * 10 * 1% = 400 USDT
Unrealized PnL (long) = (3,950 - 4,000) * 10 = -500 USDT
Margin ratio = 400 / (1,100 - 500) * 100% = 66.67%
The margin ratio is < 100%, the position can still be maintained.
However, when ETH drops to 3,930 USDT:
Unrealized PnL (long) = (3,930 - 4,000) * 10 = -700 USDT
Margin ratio = 400 / (1,100 - 700) * 100% = 100%
When the margin ratio reaches or exceeds 100%, the system will trigger liquidation. The ETH/USDT long position will be liquidated at approximately 3,930 USDT.
5. Liquidation in cross margin mode (multiple positions)
Suppose the user's account balance is 1,100 USDT and holds the following positions:
ETH/USDT position opened at 4,000 USDT with 5 ETH, 100x leverage, and a 1% maintenance margin ratio.
BTC/USDT position opened at 113,000 USDT with 0.02 BTC, 50x leverage, and a 1% maintenance margin ratio.
Cross maintenance margin calculation:
ETH: 4,000 * 5 * 1% = 200 USDT
BTC: 113,000 * 0.02 * 1% = 22.6 USDT
Σ Cross maintenance margin = 222.6 USDT
Margin ratio calculation: Cross margin ratio = Σ Maintenance margin for the cross position / (Account equity - Σ Isolated position margin + Unrealized PnL of the cross position)
Explanation of liquidation price:
If BTC price remains the same (113,000 USDT), when ETH drops to approxiamtely 3,825 USDT, liquidation is triggered.
If ETH price remains the same (4,000 USDT), when BTC drops to approximately 69,130 USDT, liquidation is triggered.
If both positions decline simultaneously and the total unrealized PnL causes the margin ratio to reach or exceed 100%, cross margin liquidation is triggered.
- Notes:
(1) The insurance fund can be viewed in contract information.
(2) The estimated liquidation price for cross margin may change at any time, as it depends on the account margin balance and the unrealized PnL of each position.
(3) There may be minor discrepancies in calculations due to precision or rounding differences, which are negligible.
(4) Values shown on the page may slightly differ from actual calculation results.
(5) AlphaX reserves the right of final interpretation of this product and its related rules.
If you have any questions, contact us via the official website, in-app customer service, or by submitting a ticket.
- Disclaimer and Risk Warning:
This document is for reference only and does not constitute investment, tax, or legal advice, nor an offer to trade digital assets. Digital assets, including stablecoins, are highly volatile and involve significant risk. You may lose all your invested capital. Futures trading can amplify both gains and losses, and past performance is not indicative of future results. Make decisions based on your financial situation, especially when using leverage. You are solely responsible for your trading decisions, and AlphaX is not liable for any losses incurred. Some products and features may not be available in all regions. Refer to the AlphaX Terms of Service and Risk Disclosure Statement for full details.
The AlphaX Team