Q1. What is Risk Limit Level?
A1: The risk limit level is a mechanism that limits the risk of a trader’s position. The forced liquidation of large positions with high leverage has a great effect on volatile markets, resulting in higher risks to other traders. To control these risks, the KuCoin Futures platform uses a tiered risk limit mechanism that requires higher initial margins for large positions. That is to say, our tiered risk limit mechanism will be adopted when a large position is undergoing forced liquidation, which can reduce the effect it may bring to the market.
The risk limit is made up of limit amount, maximum leverage, initial margin, and maintenance margin. The risk limit level increases with the value of the position. The maintenance margin and initial margin (tiered) do as well, though with lower leverage multiple.
Each contract has its own maintenance margin, which changes along with the risk limit level. Using BTC PERP (USDT) as an example, when the limit amount (also the position value) is 500,000 USDT, the risk limit level would be 1, maintenance margin would be 0.5%, the initial margin would be 1%, and the maximum leverage would be 100x. If the limit amount increases to 1,000,000 USDT, then the risk limit level would be 2, the maintenance margin would be 0.7%, the initial margin would be 1.3%, and the maximum leverage would be 75x. Higher risk limit levels require higher margins and lower leverage.
Q2. How does the risk limit level affect Futures trading?
A2: The risk limit level primarily affects order placement and forced liquidation. Read “What Is the Risk Limit Level on KuCoin Futures?” to learn more. Each contract has its own risk limit level requirements (login to view them here).
Q3. Is maximum leverage based on my identity verification level or risk limit level?
A3: Your maximum leverage is based on your identity verification level. While you can manually adjust the risk limit level, the initial margin is fixed at 1 / Leverage Multiple. For example, if your maximum leverage is 5x, then the initial margin of your position will be 1 / 5 * 100% = 20%. The maintenance margin changes along with the risk limit level.
Q4. If my initial risk limit level is 1 and I raise it to level 2 by adding to my position, do I need to adjust it manually? Will my open orders be canceled?
A4: You need to manually adjust your risk limit level after adding to the position. Any open orders for the position will be automatically canceled. Automated adjustment of risk limit levels is coming in mid-2022.
Q5. What will be my initial margin if I manually adjust the risk limit level without meeting the corresponding requirements? What happens if I don’t manually adjust the risk limit level?
A5: Your initial margin is always based on the leverage from when the position was opened (Initial Margin = 1 / Maximum Leverage).
Q6. Suppose I have a 500,000 USDT BSV/USDT PERP position with a 20% initial margin and a risk limit level of 4. Can I manually lower my risk limit level? What will be its effect?
A6: You must reduce the position to lower the risk limit level. Otherwise, you will be notified that your position amount exceeds the limit.
Q7. How is PNL calculated after reducing a position?
A7: The calculation of the PNL is separated into two parts:
- The realized PNL of auto-deleveraged positions is calculated according to its execution price. ADL is executed through limit orders within 5% of the contract’s mark price. The position PNL of the reduced position will be settled to the user's available balance.
- The unrealized PNL of remaining positions after ADL is calculated according to the mark price.
Q8. What happens to a position after a FOK (Fill or kill) order is killed?
A8: The FOK order is a buy or sell order which must be executed immediately in its entirely or else it will be cancelled. If a portion of position reduction is performed by FOK orders, the entire position undergoes forced liquidation if the FOK order is killed. For example, if your risk limit level is 4 and your FOK order is killed, the position will be taken over by the liquidation engine.
Q9: Where can I adjust the risk limit level?
Web: Click the settings icon displayed at the upper right corner of the interface, then go to "Preferences" >> "Current Contract" to make adjustments.
App: Tap the "..." icon at the upper right corner of the interface, then tap "Risk Limit" to adjust it.