To further enhance platform risk control capabilities and protect user asset security, Echobit has launched the Tiered Forced Liquidation Mechanism. This mechanism effectively reduces the impact of large position liquidations on overall market liquidity during periods of extreme market volatility, mitigates the risk of negative equity, and ensures a stable trading experience for all users.
What is Forced Liquidation?
The margin ratio is an indicator used to measure the risk level of a position's collateral. Forced liquidation occurs when a user's margin ratio falls below the platform's minimum maintenance margin ratio, prompting the system to take over the position and automatically implement risk control measures.
Echobit uses the mark price to calculate the margin ratio in order to avoid unreasonable liquidations caused by insufficient liquidity or abnormal market fluctuations.
Details of the Tiered Forced Liquidation Mechanism
To manage risks associated with large positions, Echobit implements a Tiered Position Reduction Mechanism. This mechanism categorizes user positions into multiple tiers, each with its own maintenance margin ratio requirements.
When the system detects that the current margin is insufficient to maintain the position’s current tier, a position reduction is triggered, reducing the position size to fit within the next lower tier.
If a user's current margin ratio is insufficient to maintain their tier, the system will automatically execute the following steps to prevent full liquidation:
- Cancel Open Orders: The system will cancel all active orders for the specific futures;
- Initiate Position Reduction: If the margin ratio remains below the current tier's maintenance standard after canceling orders, the system will reduce the position size to the upper limit of the next lower tier;
- Repeat Reduction if Necessary: If the margin ratio is still negative, the system will continue forced reductions until the position reaches the lowest tier;
- Execute Full Liquidation: If, after reaching the lowest tier, the margin ratio remains below 0%, the system will forcibly liquidate all positions in the current contract direction.
Note: Once forced liquidation is triggered, users will no longer be able to operate in the affected contract direction.
Example Explanation
Taking the BTC contract as an example:
- A user holds a position of ≥1,000,000 contracts, say 1,500,000, placing them in Tier 2;
- If the margin ratio ≤ Tier 2 maintenance margin ratio + liquidation fee rate, the system will initiate position reduction;
- The system calculates the reduction amount: 1,500,000 (current) - 200,000 (Tier 1 limit) = 1,300,000 contracts;
- In isolated margin mode, the system will place forced reduction orders at slightly better prices than the current market price;
- During the reduction process, the user's position in that direction will be frozen, and no other related operations will be allowed until the risk is resolved.
We advise all users to monitor their position risk levels regularly and manage leverage prudently to avoid unnecessary losses caused by market fluctuations.
Thank you for choosing Echobit. We will continue to provide you with an efficient and secure trading experience!
Echobit Team
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