Liquidation Protocols

BITFLEX uses Index Price of a perpetual contract to avoid unnecessary liquidations and market manipulation. We advise our traders to keep a close eye on their open contracts and manage their positions to avoid liquidation.

What is Liquidation?

Liquidation is the process of forced closure of open positions when a trader fails to meet the minimum cash allocation to maintain an open position.

For example, suppose that you have $100 in your account. You open a leveraged long position on BTCUSDT contract pair with 10x leverage. Your position size will be $100x10= $1000.

This $1000 consists of the $100 you own and $900, which are borrowed from the market. Now, if the price of BTCUSDT goes down by 10%, your position will be worth $900. It means that if the position were to go down any further, the lender of $900 will not risk his money and your position will be liquidated. The position will be closed, and you will lose your $100.

When Does Liquidation Occur?

Liquidation occurs when the index price of your open contract hits its liquidation price or when the position margin reaches the maintenance margin level (in case of isolated margin). If liquidation occurs, your open position will be closed, resulting in a loss of capital.

Liquidation Price

Liquidation price is the price at which the liquidation process is initiated. The process of calculating liquidation depends on the type of contract you hold. For example, cross margin uses the entirety of your assets, whereas isolated margin mode uses the funds for that specific contract.

It is calculated as follows:

·         For Buy/Longs (Isolated Margin Mode)

Liquidation Price = (Order Value – Position Margin) / ((1 - Maintenance Margin Rate) x Order Quantity)

Maintenance Margin Rate = 1/Leverage

Order Value = Order Price x Order Quantity

·         For Sell/Shorts (Isolated Margin Mode)

Liquidation Price = (Order Value + Position Margin) / ((1 + Maintenance Margin Rate) x Order Quantity)

Maintenance Margin Rate = 1/Leverage

Order Value = Order Price x Order Quantity

Liquidation Alert

BITFLEX allows its traders to reduce the risk of liquidation through liquidation alert feature.

Whenever the index price of your open perpetual contract reaches its liquidation price, you will receive an alert via email, SMS, and application notification.