To manage contract trading risk and reduce the impact of abnormal price fluctuations or market manipulation on user positions, Bitbase uses the Mark Price to assess liquidation risk. When the margin equity of an account or position is no longer sufficient to meet its maintenance margin requirement, the system will initiate the liquidation process.
This article explains the liquidation triggers under Cross Margin and Isolated Margin, as well as the handling process involving order cancellation, hedged-position netting, partial liquidation, the Insurance Fund, and Auto-Deleveraging (ADL).
Important: Liquidation is triggered by the Mark Price, not the Last Traded Price. The price displayed by default on a market chart may differ from the Mark Price. As a result, a position may enter liquidation even if the Last Traded Price has not reached the estimated liquidation price displayed on the position page.
1. What Is Liquidation?
Liquidation is a risk-management process initiated when the margin equity of an account or position is insufficient to meet the applicable maintenance margin requirement. Its purpose is to prevent losses from increasing further.
Bitbase uses the Maintenance Margin Ratio (MMR) to measure liquidation risk:
The higher the MMR, the closer the account or position is to liquidation. When the MMR reaches 100%, the system will initiate the liquidation process.
The maintenance margin requirement may be affected by position value, risk-limit tier, Mark Price, unrealized PnL, and applicable fees. The Estimated Liquidation Price displayed on the platform changes dynamically as these factors change and is provided for risk-management reference only.
2. Liquidation Under Cross Margin
Under Cross Margin, the account equity available for contract trading under the same margin asset is shared across all Cross Margin positions.
Cross Margin liquidation is triggered when the Cross Account Equity, excluding Isolated Margin and unrealized PnL from Isolated Margin positions, falls below the total maintenance margin requirement of all relevant positions. This is equivalent to the MMR reaching 100%.
Because margin is shared across Cross Margin positions, losses on one position, changes in the PnL of other positions, new positions, asset transfers, or changes to risk-limit tiers may affect the risk level of the entire account. Therefore, the Estimated Liquidation Price displayed under Cross Margin changes dynamically and should not be treated as a fixed liquidation trigger price.
3. Liquidation Under Isolated Margin
Under Isolated Margin, the margin allocated to a position is separated from the other assets in the account. The system assesses the liquidation risk of each Isolated Margin position independently.
Liquidation is triggered when the position's MMR reaches 100%, which occurs when:
Isolated Position Margin + Unrealized PnL ≤ Maintenance Margin Requirement of the Position
The liquidation of an Isolated Margin position will generally affect only that position and will not directly use the margin assigned to other Isolated Margin positions.
If Auto-Margin Replenishment is enabled and sufficient available balance remains in the contract account, the system will first add margin to the position in an attempt to reduce its liquidation risk. Auto-Margin Replenishment does not guarantee that liquidation will be avoided. If the available balance is insufficient, or if the risk remains after additional margin is added, the system will continue the liquidation process.
4. Liquidation Process
To reduce user losses where possible and preserve any remaining position, Bitbase will generally handle liquidation risk in the following order.
Step 1: Cancel Open Orders The system first cancels open orders that may occupy margin or affect position risk. The released margin is then included in a new MMR calculation.
Under Isolated Margin, the system cancels open orders related to the at-risk position.
Under Cross Margin, the system cancels relevant open orders in the contract account, including orders that may be associated with Isolated Margin positions.
If the MMR falls below 100% after order cancellation, the liquidation process will stop. Otherwise, the system will proceed to the next step.
Step 2: Net Hedged Positions In Hedge Mode, if both Long and Short positions are held for the same contract, the system will first net the portions that can offset each other. This reduces the overall position size and maintenance margin requirement.
After netting, the system recalculates the risk of the account or position. If the risk has been resolved, the liquidation process will stop. Otherwise, the system will proceed to partial liquidation.
Step 3: Partial Liquidation For positions in risk-limit tier 2 or above, the system will first attempt partial liquidation by directly reducing the position size to the maximum permitted under risk-limit tier 1. The MMR will then be recalculated.
If the MMR falls below 100% after partial liquidation, the system will preserve the remaining position and stop the liquidation process. If the risk remains, the remaining position will be taken over by the Insurance Fund account.
Example: Assume a position is currently in risk-limit tier 3. When partial liquidation is triggered, the system directly reduces the position size to the maximum permitted under risk-limit tier 1 and recalculates the MMR. If the MMR falls below 100%, the remaining position can stay open. If the MMR remains at or above 100%, the system proceeds to take over the remaining position.
Step 4: Take Over the Remaining Position If order cancellation, hedged-position netting, and partial liquidation do not resolve the risk, the remaining position will be taken over by the Insurance Fund account at the Bankruptcy Price and subsequently handled in the market.
The system may skip partial liquidation and directly take over the remaining position if any of the following conditions applies:
The position is already in the lowest risk-limit tier, no cancellable orders remain, and the MMR reaches 100%;
The MMR reaches 160%;
The recalculated MMR would still reach 100% after applying the lowest risk-limit tier; or
The account equity falls below 0.
During periods of extreme market volatility, these steps may be completed in rapid succession, and users may not have an opportunity to take manual action between them.
5. How the Insurance Fund Handles Liquidation Losses
The Insurance Fund is a risk buffer used by Bitbase to reduce the risk of losses exceeding a liquidated position's available margin. It is not user insurance and does not constitute a promise to compensate individual trading losses.
After a position is taken over by the system:
If the position can ultimately be closed at a price better than the Bankruptcy Price, the remaining funds will be credited to the applicable Insurance Fund.
If the final execution price is worse than the Bankruptcy Price, the resulting shortfall will be covered by the applicable Insurance Fund to the extent of its available balance. The Insurance Fund will continue covering the shortfall until it is fully covered or the balance of the applicable fund reaches zero.
Different contracts or margin assets may use separate or shared Insurance Fund pools. Please refer to the latest information published by Bitbase for the applicable arrangement.
6. Auto-Deleveraging (ADL)
If a liquidation shortfall remains after the applicable Insurance Fund has been used until its balance reaches zero, the system may initiate Auto-Deleveraging (ADL).
When ADL is activated, the system selects users holding positions in the opposite direction according to their ADL ranking. In general, positions with higher profits and higher effective leverage rank closer to the front of the ADL queue and are more likely to be automatically reduced.
Selected positions will be reduced in accordance with the ADL execution-price rules in effect at the time. If the applicable rule uses the Mark Price, the position will be reduced at the Mark Price prevailing when ADL occurs. No trading fee is charged for an ADL execution. Once completed, the system will send a notification and label the relevant record as “Auto-Deleveraging” or “ADL” in Order History or Position History.
7. How to View Liquidation Records
Users can review the outcome of a liquidation in the following sections:
Position History: View positions that were partially liquidated, fully liquidated, or affected by ADL.
Order History: View liquidation orders, executed quantity, Execution Average Price, and order status.
Fund History: View liquidation-related fees, Insurance Fund entries, and other related balance changes.
The Estimated Liquidation Price, Liquidation Trigger Price, Bankruptcy Price, and final Execution Average Price represent different concepts and should not be treated as interchangeable.
8. How to Reduce Liquidation Risk
Users may take the following actions to reduce liquidation risk:
Use lower leverage and avoid excessively large positions.
Add margin or reduce the position size in a timely manner.
Monitor the MMR, Estimated Liquidation Price, and available balance.
Set Take Profit and Stop Loss orders appropriately, and confirm the trigger-price type used by each Stop Loss order.
Avoid excessively concentrated positions during periods of high volatility, low liquidity, or rapid price gaps.
Use Isolated Margin to limit the amount of funds exposed to the risk of a single position.
Before enabling Auto-Margin Replenishment, understand that it may continue using the available balance in the account.
A Stop Loss order does not guarantee that liquidation will be avoided. If the Stop Loss order is triggered by the Last Traded Price while the Mark Price reaches the liquidation condition first, the liquidation process will take priority.
9. Related Price Definitions
Term
Definition
Mark Price
The risk-reference price used to calculate unrealized PnL and determine whether liquidation should be triggered.
Estimated Liquidation Price
A risk-reference value estimated from the current position, margin, and risk parameters. It changes dynamically when the relevant conditions change.
Liquidation Trigger Price
The Mark Price recorded when the system actually initiates the liquidation process.
Bankruptcy Price
The theoretical price at which the position's margin is fully depleted. It is also used for risk accounting when the remaining position is taken over by the Insurance Fund account.
Risk Disclosure
Contract trading involves substantial risk. The liquidation process may be affected by market volatility, liquidity, slippage, risk-limit tiers, trading fees, and adjustments to system risk parameters. The Estimated Liquidation Price is provided for reference only and does not constitute a guarantee of the actual trigger price, execution price, or amount of loss.
Bitbase may adjust its margin, risk-limit, liquidation, Insurance Fund, and ADL rules based on market conditions and risk-management requirements. The latest rules and parameters published by Bitbase shall prevail.
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