Overview
When the Risk Ratio of a futures account reaches 10%, BKG Exchange will trigger the Forced Liquidation process for the relevant position or positions.
Once forced liquidation is triggered, the affected position will no longer be held and the relevant funds will enter the settlement process.
The liquidation and settlement rules differ between Cross Margin and Isolated Margin modes.
When Does Forced Liquidation Occur?
Forced liquidation is triggered when the Risk Ratio reaches 10%.
The Risk Ratio reflects the current risk level of the futures account or position. As market prices fluctuate, the Risk Ratio may change accordingly.
When the Risk Ratio reaches 10%, the system will trigger the forced liquidation process according to the applicable futures risk management rules.
During periods of significant market volatility, the liquidation process may be affected by market conditions and available liquidity.
Cross Margin Liquidation
Under Cross Margin, when the Risk Ratio reaches 10%, the system will forcibly close the relevant positions in the futures account.
During the liquidation process:
- The system will forcibly close the relevant futures positions.
- Losses generated by the orders and applicable trading fees will be settled first.
- After deducting the applicable losses and trading fees, the remaining available futures balance in the account will be subject to settlement.
- After settlement is completed, no futures margin balance will remain in the affected futures account.
Isolated Margin Liquidation
Under Isolated Margin, when the Risk Ratio of an isolated position reaches 10%, the system will forcibly close that isolated position.
During the liquidation process:
- The system will forcibly close the relevant isolated position.
- The margin assigned to the position will first be used to settle the position's losses and applicable trading fees.
- After deducting the applicable losses and trading fees, the remaining margin associated with the position will be subject to settlement.
- No remaining margin from the liquidated position will be returned to the futures account.
The liquidation of an isolated position does not affect other funds in the futures account, subject to the applicable platform rules.
What Happens to Funds After Liquidation?
Funds generated through the forced liquidation and settlement process will be transferred to the platform's Risk Reserve Fund.
In extreme market conditions, such as severe market volatility or insufficient market liquidity, the liquidation price may not fully cover the losses associated with a position.
If this results in a negative balance or a loss exceeding the user's available funds, BKG Exchange may use the Risk Reserve Fund to cover the applicable negative amount according to the platform's risk management rules.
This mechanism is designed to prevent users from incurring additional debt resulting from liquidation deficits and to support the overall stability of the futures system.
Risk Ratio
The Risk Ratio is an important indicator used to monitor the risk level of a futures account or position.
When the Risk Ratio reaches 10%, forced liquidation is triggered.
The Risk Ratio may change rapidly as a result of:
- Market price movements
- Position size
- Leverage
- Margin
- Unrealized PnL
- Other applicable risk parameters
Users should monitor their Risk Ratio regularly, especially during periods of high market volatility.
Liquidation vs. Stop Loss
Forced liquidation and Stop Loss are different mechanisms.
Stop Loss
A Stop Loss is a user-configured risk management function that can be used to close or reduce a position when a specified trigger condition is reached.
Forced Liquidation
Forced liquidation is a system-enforced risk management process that is triggered when the Risk Ratio reaches 10%.
A Stop Loss may help manage losses before forced liquidation occurs, but execution is not guaranteed and it cannot completely eliminate liquidation risk.
How to Reduce Liquidation Risk
Control Leverage
Higher leverage can increase the impact of market price movements on your position and increase liquidation risk.
Maintain Sufficient Margin
Maintaining sufficient margin can provide additional room for market fluctuations.
Monitor Your Risk Ratio
Regularly monitor your Risk Ratio and position information, particularly during periods of high market volatility.
Manage Position Size
Avoid taking positions that are too large relative to the available margin in your futures account.
Use Risk Management Tools
Where available, use Take Profit and Stop Loss functions to manage your positions according to your trading strategy.
Important Notes
- Futures trading involves significant risk.
- A Risk Ratio of 10% triggers forced liquidation.
- Under Cross Margin, liquidation may affect the available funds within the relevant futures account.
- Under Isolated Margin, liquidation applies only to the relevant isolated position.
- The Risk Ratio may change rapidly during volatile market conditions.
- Extreme market volatility and insufficient liquidity may affect the liquidation process.
- BKG Exchange may dynamically adjust applicable risk management mechanisms based on market conditions.
- Users should carefully manage leverage, position size, and margin to reduce liquidation risk.
FAQ
At what Risk Ratio will forced liquidation be triggered?
Forced liquidation is triggered when the Risk Ratio reaches 10%.
What happens when the Risk Ratio reaches 10%?
The system will trigger the forced liquidation process for the relevant position or positions according to the applicable margin mode and risk management rules.
What happens under Cross Margin?
The relevant positions will be forcibly closed. After settling applicable losses and trading fees, the remaining available futures balance will be subject to settlement.
What happens under Isolated Margin?
Only the relevant isolated position will be forcibly closed. Its assigned margin will be used to settle applicable losses and trading fees, and the remaining margin associated with that position will be subject to settlement.
Will Isolated Margin liquidation affect my other funds?
No. The liquidation of an isolated position does not affect other funds in the futures account, subject to the applicable platform rules.
What is the Risk Reserve Fund?
The Risk Reserve Fund is part of the platform's risk management mechanism. It may be used to cover applicable negative amounts resulting from liquidation deficits under extreme market conditions.
Can I avoid forced liquidation?
There is no guaranteed way to avoid liquidation. Users can reduce liquidation risk by controlling leverage and position size, maintaining sufficient margin, and closely monitoring the Risk Ratio.