What is Liquidation?

To keep the positions open, traders are required to hold a percentage of the value of their position, i.e., the Maintenance Margin percentage. If a trader fails to fulfill the maintenance requirement, his/her position will be taken over by the liquidation engine and gets liquidated, and the maintenance margin will be lost.

Traders could check the maintenance margin percentage at Contract Specifications

The calculation of the maintenance margin is based on the average entry price and the position leverage. Traders shall take notice to the price gap of the liquidation price and the mark price. If the mark price reaches the liquidation price, the position will be taken over by the liquidation engine and get liquidated.

Minimisation of Liquidations

• Fair Price Marking is used at KuCoin Futures for the purpose of avoiding liquidation due to illiquid markets or manipulation.

• Traders could reduce the leverage size of their position by adding margins, therefore to keep the mark price lower than the liquidation price.

• If a liquidation is triggered, KuCoin Futures will cancel any open orders on the current contract to free up margin and maintain the position, if the position is on Auto-Deposit Margin mode. Orders on other contracts will not be affected.

For example, if a trader uses 100 leverage to long 5 BTC at price 5000 USD, then the Initial Margin of the position would be 0.05 BTC (fees not included) and the liquidation price would be 4938 USD.

If the trader increased the margin and added 0.05 BTC to the position, then the margin of the position becomes 0.1 BTC and the liquidation price will fall to 4938 USD.

If the mark price drops to 4938 USD and the trader enabled the “Auto-Margin Deposit” mode. The system will automatically add 0.05 BTC to the position and the liquidation price drops to 4890, therefore again avoid the position being liquidated.

Liquidation Process

Liquidation process at KuCoin Futures involves the following steps:

Users using the lowest Risk Limit

1. Any open order is cancelled on the contract, if the position is on Auto-Deposit Margin mode.

2. If the maintenance margin requirement is not met then the whole position will be taken over by the liquidation engine and get liquidated at the bankruptcy price.

Users using higher Risk Limit

1. Liquidation system will attempt to bring a user down to a Risk Limit tier associated with his/her open orders and current position.

2. Any open order will be cancelled on the contract, if the position is on Auto-Deposit Margin mode.

3. A FillOrKill order, of a size to bring the position value below a lower tier Risk Limit and thus reduce the maintenance margin requirement, will be sent.

4. If the maintenance margin requirement is not met then the whole position will be taken over by the liquidation engine and get liquidated at the bankruptcy price.

What Will Happen After Liquidation?

All the margin of a position will be lost if the position is liquidated. When a position is taken over by the liquidation engine, the system will close the position at liquidation price. If the account balance falls into a negative balance, the insurance funds will be applied to cover the cost, but if the insurance funds is not sufficient to cover the extra cost of the liquidation, the ADL will be triggered therefore guarantee that the trader will only lose the fixed amount of margin.