FAQ on Liquidation for Futures Trading
#Basic
#Futures
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1. What is Liquidation?
Liquidation, also known as forced closure or margin call, occurs when the platform automatically closes a user's position. On MEXC, the maintenance margin rate (MMR) is an indicator of the user's asset risk. If the MMR reaches 100% or higher, the system will forcibly close the user's position. It’s recommended that users closely monitor changes in their maintenance margin rate to avoid liquidation.
2. What triggers liquidation on MEXC?
MEXC uses the fair price as the trigger for liquidation. When the fair price reaches the liquidation price, the liquidation mechanism is activated. Using the fair price as a reference helps improve market stability and reduces unnecessary liquidation during periods of abnormal market fluctuations.
Users can view the current fair price and its explanation at the top of the trading page. Additionally, at the top of the candlestick chart, users can switch between the fair price, the last price, and the index price to easily track the trends of all three prices.
3. What is the liquidation process like?
When liquidation is triggered, the system will execute a tiered liquidation based on the user's position risk limit to prevent the entire position from being liquidated and to better manage risks.
Order Cancelation
- Cross Margin Mode: All open orders under the account are canceled.
- Isolated Margin Mode (when the auto-margin addition feature is enabled): All open orders for the affected contract are canceled.
- After canceling orders, if the maintenance margin rate still equals or exceeds 100%, the process moves on to the next step.
Long-Short Self Trading
- In cross margin mode, if both long and short positions exist simultaneously, the system will automatically reduce positions by performing self trading.
- This step only applies in cross margin mode. After completing self-trading, if the margin rate is still 100% or higher, the system will proceed to the next step.
Tiered Liquidation
- Lowest Risk Tier: If the position is already in the lowest risk limit tier, the process moves on to the next step.
- Higher Risk Tiers: If the position is at a higher risk limit tier, the system will liquidate part of the position at the bankruptcy price to reduce the risk limit tier. The system will then recalculate the margin rate based on the new, lowered maintenance margin rate. If the margin rate remains 100% or higher, the tier liquidation process continues until the lowest tier is reached.
Full Liquidation
- When the position is at the lowest risk tier but still has a margin rate at or above 100%, the remaining position is fully taken over by the liquidation engine at the bankruptcy price.
- Note: Liquidations are handled by the liquidation engine and do not go through the matching engine, so the bankruptcy price is not reflected in transaction records or on the price chart.
After Liquidation Engine Takeover:
Once a user's position is taken over by the liquidation engine at the bankruptcy price, if it can be executed at a price better than the bankruptcy price, any remaining margin will be added to the insurance fund.
If the position cannot be executed at a price better than the bankruptcy price, the resulting deficit will be covered by the insurance fund. Finally, if the insurance fund is insufficient to cover the loss, the position will be passed on to the auto-deleveraging (ADL) system.
4. How do I view liquidation orders?
Liquidation orders can be found in the Position History section.
4.1 App
Method 1
1）Log in to the MEXC App and click Futures at the bottom to enter the Futures Trading page.
2）Click the order icon in the order section.
3）Check your liquidation orders in Position History.
Method 2
1）Log in to the MEXC App and tap Wallets at the bottom to enter the Wallets page.
2）Select the Futures tab and click the order icon on the right.
3）View your liquidation orders in Position History.
4.2 Web
On the website, log in and click Futures Orders under Orders in the top-right navigation bar.
Under Position History, you can view your liquidated orders.
5. Is the liquidation price the same as the bankruptcy price?
The liquidation price shown in the position history details and the PNL summary on the sharing page is the bankruptcy price. The bankruptcy price is the price at which 100% of the margin in a user's Futures position is lost. While the liquidation price is merely a trigger point, the liquidation engine will take over the user's position at the bankruptcy price once liquidation occurs. This means that after liquidation, the user's margin will be completely lost.
6. Why is the liquidation price not shown on the candlestick chart?
When the fair price reaches the position's liquidation price, the system will take over the position at the bankruptcy price. Since the liquidation process does not go through the matching engine, the bankruptcy price will not appear in the market transaction records or on the candlestick chart. Any profit or clawback losses resulting from the liquidation are either fully added to or deducted from the insurance fund. This is one of MEXC's risk control measures in Futures trading, designed to prevent the automatic deleveraging mechanism from being triggered by excessive volatility.
Example
Liquidation Order Details:
The market's fair price reached the liquidation price of 0.962 USDT, triggering the liquidation of 2,619 ADA. This portion of the position was taken over by the liquidation engine at a bankruptcy price of 0.9581 USDT.
Leverage | Avg. Entry Price (USDT) | Maintenance Margin (USDT) | Position Value | Maintenance Margin Rate | Liquidation Price (USDT) | Bankruptcy Price (USDT) | |
Entry | 70X | 0.9780 | 36.5912 | 2,619 ADA | 0.4% | - | - |
Liquidation | 70X | - | - | 2,619 ADA | 0.4% | 0.962 | 0.9581 |
Based on the ADAUSDT risk control rules on MEXC, for leverage between 0 and 200x and a position value ranging from 0 USDT to 1,899,600 USDT, the maintenance margin rate for both long and short positions is 0.4%.
In the example, the ADAUSDT long position has an average entry price of 0.978 USDT, a liquidation price of 0.962 USDT, and a bankruptcy price of 0.9581 USDT. Based on these figures:
(0.9581 / 0.962) × 100% = 99.6%
99.6% + 0.4% = 100%
For detailed calculation methods regarding liquidation price and bankruptcy price, please refer to "Liquidation and Risk Limit."
7. How does maintenance marginaffect liquidation (Understanding Maintenance Margin)?
The maintenance margin rate is calculated based on the size of the user's position, not the leverage. This means that the maintenance margin rate is not influenced by the leverage multiplier. The system divides position sizes into several tiers according to the Future's base risk limit and incremental thresholds. Each tier corresponds to a different maintenance margin rate; the larger the position size, the higher the maintenance margin rate.
Think of the maintenance margin rate as the amount of margin that's "locked" to manage risk. The bigger your position, the higher the rate—the more of your margin is set aside.
Example: If User A has a 1% maintenance margin rate and is using 100 USDT as margin, 1 USDT will be locked. If the losses reach 99 USDT, the position will be liquidated before the entire 100 USDT is lost. This helps the platform manage risks more effectively.
8. What is the relationship between leverage and liquidation price？
- In cross margin mode, the leverage only affects the amount of margin required and does not directly determine the liquidation price. The liquidation price in cross margin mode is determined by the account balance and the value of open positions.
- In isolated margin mode, if the user does not adjust the margin after opening a position, higher leverage will cause the liquidation price to approach the entry price, increasing the risk of liquidation.
In cross margin mode, here's how "effective leverage" works:
For example, suppose a user has 10 USDT in their account. In cross margin mode, if they select 10x leverage to open a position worth 10 USDT, the initial margin for that position would be calculated as follows:
Initial Margin = Position value / Leverage = 10 USDT / 10 = 1 USDT
This means 1 USDT from the user's account would be locked as margin, while the remaining 9 USDT would still be available for other positions.
Since the user is trading in cross margin mode, their entire account balance serves as available margin. This means all 10 USDT in their Futures account can be utilized for position risk management. Therefore, despite selecting 10x leverage, their effective leverage actually calculates to:
Effective Leverage = Account balance / Position value = 10 USDT / 10 USDT = 1
This demonstrates that in cross margin mode, leverage does not directly determine the liquidation price. Instead, the liquidation price depends primarily on the account’s available margin and the value of the open positions.
9. Why does the liquidation value (in USDT) differ from the initial position value?
When you set your contract unit to USDT, instead of quantity or cont., in USDT-Margined Futures Trading, the liquidated quantity shown in Position History may differ from your opening quantity.
This happens because while you hold the same number of tokens throughout, their value changes as prices fluctuate. Since liquidated amount (position value) is calculated by multiplying token quantity by the average execution price, the final liquidated amount will typically vary from your initial position size.