Liquidation and Risk Limit

MEXC

2020-06-08

I. About Liquidation

MEXC uses the fair price to prevent liquidation due to illiquidity or market manipulation. Your liquidation price and unrealized PNL will be calculated using the fair price.

MEXC uses fair price to prevent forced liquidation due to insufficient liquidity or market manipulation. Your liquidation price and unrealized PNL will be calculated using the fair price.

Liquidation in Isolated Margin Mode

Position Margin + Unrealized P&L ≤ Maintenance Margin + Liquidation Fees

When the margin rate = 100%, liquidation will be triggered.

Liquidation in Cross Margin Mode

Equity in cross margin account (excluding margin and unrealized PNL in isolated margin mode, and all order margin) ≤ Maintenance Margin + Liquidation Fees

When the margin rate = 100%, liquidation will be triggered.

Liquidation Process

In the event that liquidation is triggered, the system will perform a partial liquidation process in an attempt to avoid a full liquidation of a trader’s position based on the trader’s risk tier.

In the event that liquidation is triggered, the system will limit the position according to the risk set by the user. The system will implement a ladder forced liquidation method to avoid all positions being liquidated, thereby mitigating the user's risk.

Canceling an order: In cross margin mode, all current orders will be canceled. In isolated margin mode, if automatic margin call is enabled, all current Futures orders will be canceled. If the margin rate is still greater than 100% after the cancellation, the system will proceed to the next step.
Long/short self-dealing: Self-deal forced position reduction of cross margin positions in hedged mode (only for cross margin mode). If the margin rate is still greater than or equal to 100%, the system will continue to the next step.
Partial liquidation: If the user's position is at the lowest risk tier, the system will proceed to the next step directly. If tier is greater than the 1st tier, the tier needs to be lowered first, i.e., part of the positions at the current tier will be taken over by the forced liquidation mechanism and liquidated at the bankruptcy price so as to reduce the risk limit tier. The maintenance margin rate is then calculated using the maintenance margin after the reduction to see if it is greater than or equal to 100%. If the conditions for liquidation are still met, the positions will be reduced again until it reaches the lowest tier.
Forced liquidation: If the position is at the lowest tier but the margin rate is greater than or equal to 100%, the remaining position will be taken over by the forced liquidation mechanism and liquidated at the bankruptcy price. (The takeover process does not go through the aggregation system so the bankruptcy price will not be displayed on the market transaction record and K-line.)

Process after positions are taken over by the forced liquidation mechanism:

When a user’s position is taken over by the forced liquidation mechanism at the bankruptcy price, if the position can be executed in the market at a better price, the remaining margin will be added to the insurance fund.
If the position cannot be executed at a price better than the bankruptcy price, the loss will be covered by the insurance fund. Eventually, if the insurance fund is not sufficient to cover the loss of the liquidated position, the position will be taken over by the auto-deleveraging system.

Calculation of Liquidation Price

(1) Liquidation Price (isolated margin mode, users can manually add margin)

Liquidation condition: Position Margin + unrealized P&L ≤ Maintenance Margin + Liquidation Fees

When the margin rate = 100%, liquidation will be triggered and the price of the forced liquidation is derived from the equation. (In the example below, liquidation fees will be omitted in the calculation process.)

Long: Liquidation Price = (Maintenance Margin – Position Margin + Averaging opening price * Quantity * Position size) / (Quantity * Position size)

Short: Liquidation Price = (Averaging opening price * Quantity * Position size - Maintenance Margin + Position Margin) / (Quantity * Position size)

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

Maintenance Margin = 8000x10000x0.0001x0.5%=40USDT;

Position Margin = 8000x10000x0.0001/25=320USDT;

Calculate the user’s liquidation price:

Liquidation Price for the Long position =（40-320+8000x10000x0.0001）/（10000x0.0001）=7720

*In isolated margin mode, users can manually increase the margin of the position to widen the gap it has from the opening price. This will give them a better liquidation price. Hence, users can manually increase the margin to lower the risk of the position when risk limit is high.

(2) Liquidation Price (cross margin mode)

Liquidation condition: Equity in cross margin account (excluding margin and unrealized PNL in isolated margin mode, and all order margin) ≤ Maintenance Margin + Liquidation Fees

Forced Liquidation Price = (Average Short Position Opening Price * Short Position Quantity * Position size – Average Long Position Opening Price * Long Position Quantity * Position size – 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 * Position size – Long Position Quantity * Position size)

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 is 500 USDT. 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 1st tier of risk limit with a maintenance margin of 0.5%.)

Position Maintenance Margin in Cross Margin Mode = 8,000 x 10,000 x 0.0001 x 0.5% = 40 USDT;

The forced liquidation price can be calculated as below:

Forced Liquidation Price =（0 * 0 * 0.0001 – 8,000 x 10,000 x 0.0001 – 40 +（500 – 0 – 0 + 0））/（0 * 0.0001 – 10000 x 0.0001）= 7,540 USDT

*Different from isolated margin mode, the 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 liquidation price for the two positions will be the same.

II. About Risk Limit

In a highly volatile trading environment, a trader holding a large position with 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, the risk limit mechanism is applied to all trading accounts in MEXC. The system uses a tiered margin model for risk control and the leverage multiple depends on the size of the position. The larger the position, the lower the available leverage multiple. Users may adjust the leverage multiple themselves. The initial margin rate is calculated based on the leverage multiple adjusted by the user.

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. However, users can still adjust the multiple. 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, an alert regarding the position limit will pop out as shown below:

Maintenance margin rate

The maintenance margin rate is not calculated based on the user's adjusted leverage multiple, but 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. 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 futures, kindly check Risk Limit under Futures Information.)

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

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:

Adjustment of maximum leverage
Adjustment of position limits for different tiers
Adjustment of maintenance margin rate of different tiers

Examples of Risk Limit Mechanism

Using BTCUSDT perpetual futures as an example:

Tier	Maximum Leverage	Holding Positions	Maintenance Margin Rate
1	200x	0～525,000 cont.	0.4%
2	111x	525,000～1,050,000 cont.	0.8%
3	76x	1,050,000～1,575,000 cont.	1.2%
4	58x	1,575,000～2,100,000 cont.	1.6%
5	47x	2,100,000～2,625,000 cont.	2%

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

(1) Leverage multiple determines the user’s position limit

When the leverage is adjusted to 200x, it corresponds to the 1st tier of risk limit. The user’s position limit at this time would be 525,000 cont. (including no. of contracts the user is already holding and unfilled open orders).

When the user's leverage is adjusted to 50x, it corresponds to the 4th tier of risk limit (47 < user’s leverage ≤ 58). The user’s position limit at this time would be 2,100,000 cont. (including no. of contracts the user is already holding and unfilled open orders).

(2) Maintenance margin rate at different tiers based on 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 1st tier of risk limit (no. of open positions: 0 - 100,000 cont.). Hence the user’s position's 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. now. This corresponds to the 2nd 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, liquidation will be triggered. As it is in the higher tier, liquidation by tier will be activated. Position of 20,000 cont. will be liquidated first, lowering the no. of open positions to 100,000 cont. This will lower the risk limit from the 2nd tier to 1st tier and the maintenance margin rate from 1% to 0.5%. The condition of the remaining positions will be monitored and the remaining positions will be liquidated if they remain under liquidation risk. If not, the positions will be kept.

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