Liquidation & Risk limits of Coin-margined Perpetual Contract

Forced Liquidation

MEXC uses the fair price to avoid forced liquidation caused by illiquidity or market manipulation. The forced liquidation price and unrealized PNL of your position are calculated based on a fair price.

1. Forced Liquidation in Isolated Margin Mode

Position Margin + Unrealized PNL ≤ Maintenance Margin + Forced Liquidation Fee, which means when margin rate = 100%, forced liquidation will be triggered

2. Forced Liquidation in Cross Margin Mode

Cross-margin Account Equity (excluding margin and unrealized PNL in isolated margin mode, and all order margin) ≤ Maintenance Margin in Cross Margin Mode + Forced Liquidation Fee, which means when margin rate = 100%, forced liquidation will be triggered.

3. Forced Liquidation Process

When forced liquidation is triggered, the system will carry out forced liquidation by tier according to the risk limit tier of the user’s position in order to manage the risks and prevent all positions from being liquidated.

1. Order cancelation: In cross margin mode, all orders under the account will be canceled; in isolated margin mode, if the automatic margin adding feature is enabled, all orders of the corresponding futures will be canceled. Once this is done, if the margin rate is still ≥ 100%, the following step will take place.
2. Long/short auto-filling: Positions that exist in both long and short positions in cross margin mode will be deleveraged by auto-filling (this step is only applicable to forced liquidation in cross margin mode). Once this is done, if the margin rate is still ≥ 100%, the following step will take place.
3. Forced liquidation by tier: If the risk limit of the user’s position is at the lowest tier, the following step will take place. If the risk limit is higher than the 1^st tier, it will be lowered as the position will be partially taken over by the forced liquidation engine at bankruptcy price. Once the risk limit is lowered, the margin rate will be calculated based on the maintenance margin rate to check if it is ≥ 100%. If the position is still under forced liquidation risk, the risk limit will continue to be lowered until it reaches the lowest tier.
4. Liquidation: If the risk limit is at the lowest tier, but the margin rate is ≥ 100%, the remaining positions will be taken over by the forced liquidation engine at bankruptcy price. (The forced liquidation price will not show on the market transaction history or candlestick chart.)

After Position Takeover by Forced Liquidation Engine

1. After the user’s position is taken over by the forced liquidation engine at the bankruptcy price, if the position can be filled on the market at a price better than the bankruptcy price, the remaining margin will be added to the insurance funds.
2. If the position cannot be filled at a price better than the bankruptcy price, the deficit losses will be covered by the insurance funds. If the insurance funds are insufficient to cover, the position will be taken over by the auto-deleveraging system.

4. Calculation of Forced Liquidation Price
5. Forced Liquidation Price (Isolated Margin Mode)
   In isolated margin mode, users can add margin manually.

Forced Liquidation Conditions: Position Margin + Floating PNL ≤ Maintenance Margin + Forced Liquidation Fee, meaning when margin rate = 100%, forced liquidation will be triggered and forced liquidation price will be calculated.

(For example purposes, the forced liquidation fee is omitted from the following calculation.

Long Position Forced Liquidation Price = Average Position Opening Price * Quantity * Face Value / (Quantity * Face Value + Average Position Opening Price * (Position Margin – Maintenance Margin))

Short Position Forced Liquidation Price = Average Position Opening Price * Quantity * Face Value / (Average Position Opening Price * (Maintenance Margin – Position Margin) + Quantity * Face Value);

A user buys in 10,000 cont. of BTCUSDT perpetual futures at 8,000 USD with an initial leverage multiple of 25x in a long position. (Assume the position of 10,000 cont. is at 1^st tier of risk limit with maintenance margin rate of 0.5%.)

Maintenance Margin = 100 * 10,000 / 8,000 * 0.5% = 0.0625 BTC;

Position Margin = 10,000 * 100 / (8,000 * 25) = 5 BTC;

The forced liquidation price can be calculated as below:

Long Position Forced Liquidation Price = (8,000 * 10,000 * 100) / (10,000 * 100 + 8,000 * (5 – 0.0625)) = 7,696 USDT

*In isolated margin mode, users can manually add on position margin to increase the difference with position opening price, hence making forced liquidation price more favorable; so, when the risk limit is high, users can manually add in more margin to lower the risk of the position.

1. Forced Liquidation Price (Cross Margin Mode)

Forced Liquidation Conditions: Cross Margin Account Equity (excluding margin and unrealized PNL in isolated margin mode, and all order margin) ≤ Maintenance Margin in Cross Margin Mode + Forced Liquidation Fee, meaning when margin rate = 100%, forced liquidation will be triggered and forced liquidation price will be calculated.

(For example purposes, the forced liquidation fee is omitted from the following calculation.

Forced Liquidation Price = (Average Short Position Opening Price * Short Position Quantity * Face Value – Average Long Position Opening Price * Long Position Quantity * Face Value – Cross Margin Position Maintenance Margin + (Wallet Balance – Position Margin in Isolated Margin Mode – Order Margin + Unrealized PNL of other futures positions in cross margin mode) / (Short Position Quantity * Face Value – Long Position Quantity * Face Value)

A user buys in 10,000 cont. of BTCUSDT perpetual futures at 8,000 USDT with an initial leverage multiple of 25x, and their wallet balance of 6 BTC. Note that this is the user’s only long position in cross margin mode, and there are no other positions in isolated margin mode or pending orders. (Assume the position of the 10,000 cont. is at 1^st tier of risk limit with a maintenance margin of 0.5%.)

Position Maintenance Margin in Cross Margin Mode = 10,000 * 100 / 8,000 * 0.5% = 0.0625 BTC

The forced liquidation price can be calculated as below:

Forced Liquidation Price = (10,000 * 100 – 0 * 100) / ((6 – 0 – 0) + 10,000 * 100 / 8,000 – 0 – 0.0625) = 7,637 USDT

*Difference from isolated margin mode, the forced liquidation price in cross margin mode may change from time to time, as the margin might be affected by positions of other trading pairs. In cross-margin mode, the initial margin of every position is independent, but the margin is shared. The unrealized PNL of each position may affect the cross-margin account equity. When there are multiple cross-margin positions in both long and short positions under the same futures, the forced liquidation price for the two positions will be the same.

About Risk Limits

In a highly volatile trading environment, a trader holding a large position using high leverage will likely incur the significant risk of deficit loss. If the insurance fund is depleted, the auto-deleveraging system may be triggered, creating additional risk for other traders. Therefore, MEXC applies the risk limit mechanism for all trading accounts, which means the system uses a tiered margin model for risk control, with the leverage multiple depending on the size of the position; the larger the position, the lower the available leverage multiple. Users may adjust the leverage multiple themselves, while the initial margin rate is calculated based on the leverage multiple adjusted by the user.

1. Position Limit, Maximum Leverage, and Initial Margin Rate

Before opening a position, users are required to adjust the leverage multiple. If the user did not adjust the leverage, the MEXC default leverage multiple of 20x will be applied, but it can be adjusted by the user. The leverage multiple determines the position limit, where the higher the leverage multiple, the lower the position limit.

When the user adjusts the leverage multiple, the page will display an alert regarding the position limit as below:

2. Maintenance Margin Rate

The maintenance margin rate is not calculated based on the user's adjusted leverage multiple, but on the user's position size, which means that the maintenance margin rate is not affected by the leverage multiple. The system divides the position amount into several tiers according to the basic risk limit and incremental amount of the futures, and different maintenance margin rates are applied to different tiers, where the larger the position amount, the higher the maintenance margin rate. (For risk limit details of each future, kindly check Risk Limit under Futures Information.)

The forced liquidation price is affected directly by the maintenance margin. Therefore, we strongly recommend users close their positions before the margin balance drops to the maintenance margin level in order to avoid forced liquidation.

Please note that under abnormal price fluctuations and volatile market conditions, the system will take additional measures to maintain market stability, including but not limited to:

1. Adjustment of maximum leverage.
2. Adjustment of position limits for different tiers.
3. Adjustment of maintenance margin ratio of different tiers.

3. Example of Risk Limit Mechanism

Take BTCUSDT perpetual futures as an example:

Assume the risk limit tiers for BTCUSDT perpetual futures are as shown above. (The figures shown are for example purposes only, for the actual figures, kindly refer to the risk limit tiers of respective futures.)

1. The leverage multiple determines the user’s position limit

When the user's leverage is adjusted to 50x, it corresponds to the 4^th tier of risk limit (41x < user’s leverage ≤ 50x), so the user’s position limit at this time would be 400,000 cont. (including no. of contracts in held positions and unfilled open orders).

When the user's leverage is adjusted to 100x, it corresponds to the 1^st tier of risk limit (83x < user’s leverage ≤ 125x), so the user’s position limit at this time would be 100,000 cont. (including no. of contracts in held positions and unfilled open orders).

2. Maintenance margin rates at different tiers depending on the position size

User A buys in 80,000 cont. of BTCUSDT perpetual futures at 10,000 USDT with a leverage multiple of 50x. At this point, the user holds 80,000 cont., which corresponds to the 1^st tier of risk limit (no. of open positions: 0 - 100,000 cont.), hence the user’s positions maintenance margin rate at this point is 0.5%.

Later on, as the price of BTCUSDT perpetual futures rises, User A continues to buy in 40,000 cont., meaning the user is holding 120,000 cont. at this point, which corresponds to the 2^nd tier of risk limit (no. of open positions: 100,000 - 200,000 cont.), hence the position maintenance margin rate is 1%.

At this point, if the user’s position is under liquidation risk, forced liquidation will be triggered. As it is in the higher risk limit tier, forced liquidation by tier will be triggered. Position of 20,000 cont. will be liquidated first, lowering the no. of open positions to 100,000 cont., hence lowering the risk limit from 2^nd tier to 1^st tier and the maintenance margin rate from 1% to 0.5%. At this point, the condition of the remaining positions will be monitored, if they remain under liquidation risk, the remaining positions will be liquidated, or else the positions will be kept.