Forced Liquidation

Many traders have some understanding of digital currency trading, but they know little about what a forced liquidation is, the consequences of a forced liquidation, the rules of a forced liquidation, and how to effectively avoid a forced liquidation to reduce losses, etc. This article will provide a brief explanation of the above.

What is Forced Liquidation?

Forced Liquidation is also known as a cut or closed position. Forced liquidation happens when a trader's trading margin is insufficient and has not been topped up within a specified period of time, or when the number of positions held by a trader exceeds the specified limit and the margin cannot meet the maintenance margin requirements of the position. The trader's corresponding position is forcibly closed in order to prevent further expansion of risk.

Note: Forced Liquidation is triggered only when the spot price reaches the forced liquidation price.

A forced liquidation may be triggered by a margin trade in the course of a loss, and once it occurs the trader will lose the margin used for the position. The most important factor in the liquidation process is the maintenance margin, which is the minimum margin requirement for the trader to keep the position. During the loss process, if the margin remaining in the position is equal to or less than the maintenance margin, a Forced Liquidation will be executed.

What is the Forced Liquidation Price

The closing price of a position is calculated based on the maintenance margin percentage, the entry price and the amount of leverage used, using a reasonable spot price that combines the prices of the spot indexes on the MEME platform. During the trading process, traders need to pay attention to the distance between the marker price and the position's liquidation price, as well as the position's risk level or full position risk level, in order to avoid a forced liquidation of the position.

How to Avoid Forced Liquidation of Positions

Traders can also avoid or reduce the occurrence of forced liquidation by using the options built into the MEME system.

a) Increase margin or decrease leverage: The MEME platform offers traders a choice of leverage multiples from 1 to 100X and a margin call function. Traders can increase the margin or decrease the leverage to move the closeout price away from a reasonable spot price.

b) Timely stop-loss: Traders can stop loss between the closing price and the opening price and execute stop-loss on losing positions to avoid forced closing.

c) Watching the position: MEME uses the Reasonable Spot Price method to calculate the required maintenance margin for the account. Margin requirements and position leverage may increase or decrease as risk limits change. Traders should check position information and the risk limit level they are in to ensure unnecessary liquidation.

The process of liquidation

a) When the (account balance + unrealized loss) of a contract account is less than or equal to the minimum maintenance margin, the system will cancel all open orders in that account and trigger the forced liquidation mechanism.

b) The system will calculate the maintenance margin rate for forced position liquidation.

Position Forced Liquidation User Warning Instructions

MEME will alert users of the imminent liquidation of their positions and margin calls via email or push notifications, MEME will not notify the above information via SMS, please make sure to bind and pay attention to the email notification.