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Q : Good morning, let's continue studying Perpetual Contract.
A : Yes, today's topic is Liquidation Process & Calculation of Liquidation Price
Q : Please tell me about Liquidation Process.
A : Gate.io takes mark price as the criteria to judge if the user is forced to close the position. The triggered effect of forced liquidation is different according to the difference between isolated and cross leverage.
Under isolated margin, when the position margin decreases to the maintenance margin level, the position will be forced to liquidation. Where the margin balance includes the unrealized PNL. Under a two-way mode, the extreme market fluctuation may cause both positions to get liquidated since long and short positions are independent.
Under cross margin, all balances can be used as margin. The position will be liquidated when the balance and position margin is below the maintenance margin level. The margin balance includes the unrealized PNL. Under a two-way mode, the position will only be liquidated if the net loss plus the total balance and the margin are still lower than the maintenance margin level.
The system will accomplish the liquidation relying successively on the market, the insurance fund, and the ADL system when the liquidation is triggered.
The liquidation process is as follows:
1.If the mark price exceeds the stop-out price, the stop-out process will be activated.
2.The activity order will be canceled, including the unsettled order and strategy order.
3.When placing an order at the bankruptcy price, the order will be settled at the market price if it's better than the bankruptcy price.
4.The process will end if the order is settled.
5.The insurance fund and ADL will be activated if the mark price exceeds the bankruptcy price.
6.The position will be locked if the market price does not exceed the bankruptcy price, and the trading will be banned till the stop-order is settled.
When the liquidation is triggered, it's viewable from the trading history/ closing history by clicking the liquidation details:
Q : Please tell me about Calculation of Liquidation Price.
A : A position will be liquidated when the balance of position margin is lower than the maintenance margin level and the user will lose all position margin. In actual contract trading, liquidation will be triggered when the mark price hits the liquidation price.
According to the different types of the contract, the calculation of the liquidation price is different:
Liquidation Price = ( Opening Price ± Margin/Contract Multiplier/Position ) / [ 1 ± ( MMR + Taker Fee)]
'±' in the formula refers to the direction of the contract, go long refers to '-' while go short refers to '+'
Liquidation Price = Position * Average Opening Price * ( 1 ± MMR ± Taker Fee ) / ( Position ± Margin * Average Opening Price)
'±' in the formula refers to the direction of the contract, go long refers to '+' while go short refers to '-'
Position refers to the number of contracts.
Maintenance Margin Ratio and Contract Multiplier can be viewed in the Contract Details.
Taker Fee: 0.075%
The contract shown in the picture above is a long contract with an average opening price of 2399, margin of 25.79, position 1ETH, and an MMR of 0.5%.
The calculation of liquidation price is as follows:
Liquidation Price = ( Opening Price - Margin/Contract Multiplier/Position ) / [ 1 - ( MMR + Taker Fee)]
That the liquidation price is calculated as:
Liquidation Price =（2399- 25.79/0.01/100）/【1 - (0.5% + 0.075%)】
Liquidation Price = 2373.21/0.99425
Liquidation Price ≈ 2386.94
Same as the reconciled price in the picture.
Q: Let's go to Question Session.