Liquidation

Liquidation is a system that exists to minimize the traders' losses. The liquidation is triggered by the Mark Price*. The position is liquidated when the Mark Price reaches the Liquidation Price. The liquidation price is calculated on the basis of maintenance margin, entry price, and leverage, which can be adjusted according to the risk limits. In the event of liquidation, the contracts and margin included in the position will be taken over by the liquidation engine and therefore disappear from the trader's Position tab. Traders on MCS can check their maintenance margin in the contract details and the required margin will be raised or lowered according to risk limits. After the position is closed, the trader is free to open a new position.

*Mark Price: The Mark Price is made up of the global spot price index and funding basis rate, in other words, a real-time spot price on major cryptocurrency exchanges. 

$$ \small\textsf{Mark Price} = {\textsf{Index Price}\times \textsf{1+Funding Basis}} $$

*Funding Basis: Variable representing the precedence of the futures market over the movement of the spot market. Thus, the difference between the spot and the futures price

\begin{align}&\small\textsf{Funding Basis}={\textsf{Current Funding Rate}}\times{\textsf{Time until Funding}\over\textsf{Funding interval}}\end{align}

 

 

Isolated Margin Liquidation Price Equation

Long - Liquidation Price

$$ \small\textsf{Isolated Margin Liquidation Price (Long)} ={{\textsf{Avg. Entry Price} \times \textsf{Leverage}} \over \textsf{Leverage(1 - Maintenance Margin Rate) + 1}} $$

 

<Isolated Margin Liquidation Price (Long) Example> 

David goes long 10x @2000 USDT

$$ \small\textsf{Isolated Margin Liquidation Price (Long)} ={{\textsf{2000} \times \textsf{10}} \over \textsf{10(1 - 0.005) + 1}} ≈ \textsf{1,826.48 USDT} $$

 

Short - Liquidation Price

$$ \small\textsf{Isolated Margin Liquidation Price (Short)} ={{\textsf{Avg. Entry Price} \times \textsf{Leverage}} \over \textsf{Leverage(1 + Maintenance Margin Rate) - 1}} $$

 

<Isolated Margin Liquidation Price (Short) Example> 

David goes short 10x @2000 USDT

$$ \small\textsf{Isolated Margin Liquidation Price (Short)} ={{\textsf{2000} \times \textsf{10}} \over \textsf{10(1 + 0.005) - 1}} ≈ \textsf{2,209.94 USDT}$$

 

 

Cross Margin Liquidation Price Equation

Long - Liquidation Price

$$ \small\textsf{Cross Margin Liquidation Price (Long)}$$

$$ \small = {{\textsf{Avg. Entry Price} \times \textsf{Quantity}} \over {\textsf{Quantity(1 - Maintenance Margin Rate} - {\textsf{Avg. Entry Price} \times \textsf{Taker Fee Rate} \over \textsf{*Bankruptcy Price}}) + {\textsf{Available Balance}\times\textsf{Avg. Entry Price}}}} $$ 

 

\begin{align}\scriptsize\textsf{*Cross Margin Bankruptcy Price (Long)} = {\textsf{1.00075}\times\textsf{Quantity}\over{{\textsf{Quantity}\over\textsf{Avg. Entry Price}}+ \textsf{Available Balance}}}\qquad \scriptsize\textsf{**Available Balance}=\textsf{Wallet Balance}-\textsf{Other Position Margin}-\textsf{Order Margin}\end{align} 

<Cross Margin Liquidation Price (Long) Example>

David currently has 0.2 BTC in his available balance and went long 5,000 BTC/USDT contracts at 2,000 USDT using cross margin.

In order to find the liquidation price, the bankruptcy price must be calculated first. Assuming there are no active orders,

\begin{align}\small\textsf{Cross Margin Bankruptcy Price (Long)}={\textsf{1.00075}\times\textsf{5000}\over{{\textsf{5000}\over\textsf{2000}}+ \textsf{0.2}}}≈\textsf{1,853.24 USDT}\end{align}

 

\begin{align}\small\textsf{Cross Margin Liquidation Price (Long)}={{\textsf{2000} \times \textsf{5000}} \over {\textsf{5000(1 – 0.005} - {\textsf{2000} \times \textsf{0.00075} \over \textsf{1,853.24}}) + {\textsf{0.2}\times\textsf{2000}}}}≈\textsf{1,861.86 USDT}\end{align}

Short - Liquidation Price

$$ \textsf{Cross Margin Liquidation Price (Short)}$$

$$ \small = {{\textsf{Avg. Entry Price} \times \textsf{Quantity}} \over {\textsf{Quantity(1 + Maintenance Margin Rate} + {\textsf{Avg. Entry Price} \times \textsf{Taker Fee Rate} \over \textsf{Bankruptcy Price}}) - {\textsf{Available Balance}\times\textsf{Avg. Entry Price}}}} $$

 

\begin{align}\scriptsize\textsf{*Cross Margin Bankruptcy Price (Short)} = {\textsf{0.99925}\times\textsf{Quantity}\over{{\textsf{Quantity}\over\textsf{Avg. Entry Price}}- \textsf{Available Balance}}}\qquad \scriptsize\textsf{**Available Balance}=\textsf{Wallet Balance}-\textsf{Other Position Margin}-\textsf{Order Margin}\end{align}

 

<Cross Margin Liquidation Price (Short) Example>

David currently has 0.2 BTC in his available balance and went short 5,000 BTC/USDT contracts at 2,000 USDT using cross margin.

In order to find the liquidation price, the bankruptcy price must be calculated first. Assuming there are no active orders,

\begin{align}\small\textsf{Cross Margin Bankruptcy Price (Short)}= {\textsf{0.99925}\times\textsf{5000}\over{{\textsf{5000}\over\textsf{2000}} - \textsf{0.2}}}≈\textsf{2,172.28 USDT}\end{align}

 

\begin{align}\small\textsf{Cross Margin Bankruptcy Price (Short)}= {{\textsf{2000} \times \textsf{5000}} \over {\textsf{5000(1 + 0.005} + {\textsf{2000} \times \textsf{0.00075} \over \textsf{2,172.28}}) - {\textsf{0.2}\times\textsf{2000}}}}≈\textsf{2,160.54 USDT}\end{align}