Depending on the leverage, leveraged positions require a certain amount of collateral, to be present in the margin account. This collateral is necessary in order to keep the position open in the event of an adverse price movement. For liquidations, a Liquidation Fee in the amount of 0.5% of the positionâ€™s value is charged in the quote currency (i.e. USDT on the BTC/USDT pair).

At HitBTC, a ratio referred to as Effective Leverage is used to determine the risk level of a particular margin account. It is calculated as follows:

**Effective Leverage = (Index Price * Position Size)/(Position Margin + Unrealized PnL)**

where the **Index Price** is, as its name implies, the Index Price. The** Position Size** is the size of the position in the base currency. The **Position Margin** is the amount of collateral available for that position. The **Unrealized PnL** is the current PnL of the position that has not yet been realized.

### Example

The Trading Pair is BTC/USDT

Index Price = 10,000 USDT

Position Size = 2 BTC (or 20,000 USDT)

Position Margin = 5,000 USDT

Unrealized PnL = 550 USDT

**Effective Leverage = (10,000 * 2)/(5,000 + 550) = ~3.6**

## The Rules

If the Effective Leverage is below 10, then a trader can change the Position Size and/or change the Position Margin. If he or she increases the Position Size twice (to 4 BTC or 40,000 USDT), the Effective Leverage will be ~7.21. If the position margin is decreased by 50% (to 2,500 USDT), the Effective Leverage will be ~6.56.

If the Effective Leverage is equal to or greater than 10, then a trader can only decrease the Position Size and/or increase the Position Margin.

Finally, if the Effective Leverage reaches 20, the position will be taken over by the Liquidation Engine and liquidated.

## The Liquidation process

In the event case of liquidation, HitBTC will follow the process described below.

- Cancel all of the open orders for a highly leveraged position.
- If after (1) above the Position Margin is still insufficient to reach the required minimum, the Liquidation Engine will attempt to close the position with a single Limit Order with Time-In-Force instruction "Fill-Or-Kill." In this way, the trader may get a better price than the Bankruptcy Price.
- If after (2) above the position is still not liquidated, it will be sold at Bankruptcy Price to the HitBTC Insurance Fund.