The HedgerX Exchange offers one types of perpetual futures: USDT-M perpetual futures.
USDT-M perpetual futures support leverage of up to 100x. While leverage is an attractive feature promising amplified profits, users should also be aware of the risks of forced liquidation.
To help futures trading enthusiasts avoid losses, this article summarizes four common questions about forced liquidation in futures trading . After reading this article, we think you will better understand HedgerX's forced liquidation mechanism, which will help you trade futures more effectively.
1. Using Mark price to Execute Liquidation
In the HedgerX futures trading mechanism, you must first understand that forced liquidation is calculated based on the fair price, not the last price or the index price. The fair price is the real-time mark price of the futures, derived from a comprehensive calculation based on the index price and last price. The mark price may deviate from the last filled price of the futures. For more information on the index price and the last price, please refer to the article "Index Price, Mark price and Last Price."
Using the fair price can effectively avoid forced liquidation caused by insufficient liquidity or market manipulation. When the mark price reaches the liquidation price, liquidation will be triggered.
To see the mark price displayed on the HedgerX website, you can select [Mark price] above the K-line chart to view.
2. Bankruptcy Price Takeover
When the market price is more favorable than the bankruptcy price, the remaining margin will be added to the HedgerX insurance fund account. If the market price is less favorable than the bankruptcy price, the HedgerX insurance fund account will make up for the deficit margin to ensure the smooth execution of forced liquidation.
3. Changes to the Liquidation Price
In theory, the liquidation price of futures does not change, but due to dynamic changes in liquidation protocols, there are some exceptions to the liquidation price.
Firstly, the liquidation price of futures differs between cross margin mode and isolated margin mode. In cross margin mode, all available margin is used as position margin. If you have multiple positions open, the unrealized PNL will affect your liquidation price. An increase in unrealized PNL will decrease the liquidation price, while a decrease will increase it. Additionally, in cross margin mode, changes in position size will also lead to changes in the liquidation price. In isolated margin mode, the liquidation price remains unchanged unless there are additional factors such as changes in the opening price or additional positions. It represents the margin balance allocated to an individual position. In cross margin mode, you can pay attention to the margin ratio. When the margin ratio reaches 100%, it indicates that part of your position may be taken over by the liquidation engine at the bankruptcy price.
Secondly, funding fees also have an impact on the liquidation price. In cross margin mode, the receiving and payment of funding fees will change the margin amount, thereby changing the liquidation price. In isolated margin mode, if a funding fee is received, the liquidation price remains unchanged. If a funding fee is paid, and there is insufficient available margin, position margin will be deducted, leading to a change in the liquidation price.
So, the liquidation price is influenced by margin mode, margin balance, and changes in funding fees. You should be aware of these differences when opening a position.
4. Failed Stop-Loss (SL) Orders
When you are trading futures on HedgerX, you may encounter situations where your SL order fails. This can happen due to the following reasons:
①Setting Unreasonable SL prices
If your SL price is too close to the liquidation price, your liquidation price may be reached before your SL order is triggered. This can result in the liquidation of your position, causing the SL order to fail.
②Violent Market Fluctuations
After triggering TP/SL, orders are placed at the market price. In cases of intense market volatility, where the market price quickly passes through the set price, it may result in the SL order not being executed or only partially executed. You can choose to wait for the order to be fully executed based on your risk preference or cancel the order.
③Other Reasons
Additionally, SL orders may fail due to factors such as insufficient closeable positions, the futures being in a non-trading state, system issues, etc.
Additionally, it's important to note that the TP/SL orders provided by HedgerX's futures are market TP/SL orders, so there might be a spread between the execution price and trigger price. The above covers common questions about forced liquidation in futures. You can reduce the likelihood of forced liquidation by employing various strategies, such as monitoring your margin, using SL orders, or reducing leverage. For more information on futures products, you can refer to other futures-related articles in HedgerX Learn.
Disclaimer:
Cryptocurrency trading involves significant risk. This information does not provide advice on investment, tax, legal, financial, accounting, consulting, or any other related services, nor is it a recommendation to buy, sell, or hold any assets. HedgerX Learn is only for informational purposes and does not constitute investment advice. Please ensure a thorough understanding of the risks involved and invest cautiously. User investment actions are independent and not directed by this platform.