If the currency pair price on the market (Mark Price) will be the same as Liq. Price for a certain contract, this contract will be liquidated.
An attempt will be made to close the contract at the current Market Price:
- Part of the margin collateral will be used to cover the loss.
- If there is a surplus of the margin collateral, it will be returned to the user.
- If the loss cannot be covered by margin collateral, the position will be covered by the Insurance Fund (internal platform mechanism).
- If the Insurance Fund is unable to process the position, the ADL mechanism can be applied to the opposite market side.
The liquidation mechanism also takes potential funding and penalties into account. So, if the Funding Rate has increased, and a high Leverage is used, when the user does not have enough collateral to deduct funding, the position can also be liquidated. Upon liquidation, a certain amount of penalty is debited from the user (0.3% of the position volume).
To avoid liquidation, the user can either close the contract before the liquidation occurs or increase the margin collateral for this contract.
Please note that Liq. Price is a dynamic parameter, so it may change as the market and/or your position data will change. It is calculated as follows:
Where, Pe - entry price, Mp - position margin, Q - position quantity, fliq = liquidation fee, rf - funding rate, n - funding rate, rmm - maintenance margin rate.