Contents
1. Isolated Margin Mode VS Cross Margin Mode
2. Estimated Liquidation Price
5. Forced-Liquidation Examples
1. Isolated Margin Mode VS Cross Margin Mode
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Isolated Margin Mode
In the isolated margin mode, a position's margin is the only collateral asset of the position. The maximum loss that a position can bear is "position margin - maintenance margin - taker fee". Forced liquidation occurs when a position's margin is ≤ maintenance margin + taker fee.
In this mode, the system will liquidate a user's position when the position margin drops below the sum of the maintenance margin and taker fee.
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Cross Margin Mode
In the cross margin mode, both the position margin and the remaining funds (used as available margin shared by all open positions) in the cross margin account are used as the collateral. This means that each position can lose more than the margin of that specific position. Forced liquidation occurs when a position's margin + available margin (total available funds in a user's account) ≤ maintenance margin + taker fee.
In this mode, the system will liquidate a user's position when the position margin and the available margin in the account drop below the sum of the maintenance margin and taker fee (other positions under the cross margin mode will not be liquidated). The user's maximum loss is all the position margin and the available margin in the account.
2. Estimated Liquidation Price
In order to better understand the risks of their current positions, users can calculate the estimated liquidation price based on the fact that the forced liquidation occurs when "the position margin is ≤ maintenance margin+taker fee". When the mark price reaches the estimated liquidation price, the user's position will be liquidated by the system, and the user will lose all the position margin (and the available margin in the user's account if in cross margin mode). Users are advised to pay close attention to any changes in the mark price and the estimated liquidation price to avoid forced liquidation.
Note: On BingX, long and short positions are independent and do not influence each other.
2.1 Isolated Margin Mode
Liquidation price for long positions = [Position value - (initial margin - maintenance margin)] / [(1 - taker fee rate) * position quantity]
Liquidation price for short positions = [Position value + (initial margin - maintenance margin)] / [(1 + taker fee rate) * position quantity]
Reasons for potential change in the estimated forced liquidation price in this mode:
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The user adjusts (increases or reduces) the margin for the open position.
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The settling of funding fees (including paying or collecting funding fees).
2.2 Cross Margin Mode
Liquidation price for long positions = [Position value - (Available margin in the account + initial margin - maintenance margin)] / [(1 - taker fee rate) * position quantity]
Liquidation price for short positions = [Position value + (available margin + initial margin - maintenance margin)] / [(1 + taker fee rate) * position quantity]
In this mode, any actions that affect account funds (changes in the available margin) may affect the estimated forced liquidation price, including but not limited to:
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Unrealized loss in other open positions caused by price fluctuations affecting the available margin in the account.
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Deductions of trading fees incurred from opening and closing positions.
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The settlement of funding fees (including paying or collecting funding fees).
3. Bankruptcy Price
The bankruptcy price is the price at which the margin drops to zero. When the mark price reaches the estimated liquidation price, the system will place an order at the bankruptcy price to liquidate the position. Since the whole process doesn't go through the matching system, the bankruptcy price will not be shown on the K-line and the bankruptcy price does not equal the actual liquidation price.
3.1 Isolated Margin Mode
Bankruptcy price for long positions = [Position value - (initial margin - 0)] / [(1 - taker fee rate) * position quantity]
Bankruptcy price for short positions = [Position value + (initial margin - 0)] / [(1 + taker fee rate) * position quantity]
3.2 Cross Margin Mode
Bankruptcy price for long positions = [Position value - (available margin + initial margin - 0)] / [(1 - taker fee rate) * position quantity]
Bankruptcy price for short positions = [Position value + (available margin + initial margin - 0)] / [(1 + taker fee rate) * position quantity]
4. Insurance Fund
Insurance funds are used in the event of negative equity incurred from forced liquidation.
Where it comes: When the system liquidates a user's position, it will take over that position and close it through forced liquidation. After liquidation, if there is some maintenance margin remaining, it will be transferred to the insurance fund.
How it works: When the system liquidates a user's position, it will take over that position and close it through forced liquidation. If the forced liquidation order fails to execute or there is negative equity incurred, the insurance fund will be used to cover the negative equity.
5. Forced-Liquidation Examples
5.1 Isolated Margin Mode
Assuming the user's account balance is 1,000 USDT, the BTC/USDT price is 10,000 USDT for 1 BTC, and a long position is opened for 1 BTC with 10x leverage. The user's account and position at this time are as follows (assuming the maintenance margin rate is 0.4%, and the taker fee rate is 0.04 %)
Net Asset Value (Account Equity) = Account balance + unrealized PnL of all positions
1,000 + 0 = 1,000 USDT
Initial margin = Average position price * position quantity/ leverage
10,000 * 1 /10 = 1,000 USDT
Liquidation price for long positions = [Position value - (initial margin - maintenance margin)] / [(1 - taker fee rate) * position quantity]
[10,000 - (1,000 - 10,000*0.4%)] / [(1 - 0.04%) * 1] = 9,043.62 USDT
Bankruptcy price = [Position value - (initial margin - 0)] / [(1 - taker fee rate) * position quantity]
[10,000 - (1,000 - 0)] / [(1 - 0.04%) * 1] = 9,003.61 USDT
If the price of BTC/USDT falls to 9,043.62, the forced liquidation will be triggered. The user's account and position are as follows:
Unrealized PnL = (Mark price - average position price) * position quantity
(9,043.62 - 10,000) * 1 = -956.38
The position's remaining margin = Max (0, position margin - unrealized loss)
Max (0, 1,000 - 956.38) = 43.62
Maintenance margin = Initial position value * maintenance margin rate
10,000 * 0.4% = 40
Taker fee = Initial position value * taker fee rate
10,000 * 0.04% = 4
At this point, the remaining margin of the position is already ≤ maintenance margin + taker fee.
When forced liquidation is triggered, the system will take over the user's position at the bankruptcy price of 9,003.61 USDT and place a liquidation order in the market.
If the price in the market is 9,010 USDT, there will be some margin remaining, which is
Forced liquidation market price - bankruptcy price * position quantity = (9,010 - 9,003.61) * 1 = 6.39 which will be transferred to the user's insurance fund;
If the liquidation market price is 8,990 USDT, negative equity will occur to the user's account, which is
Forced liquidation market price - bankruptcy price * position quantity = (8,990 - 9,003.61) * 1 = -13.61, the negative equity will be covered by the insurance fund.
5.2 Cross Margin Mode
Assuming the user's account balance is 2,000 USDT, the BTC/USDT price is 10,000 USDT for 1 BTC, and a long position is opened for 1 BTC with 10x leverage. The ETH/USDT price is 5,000 USDT, and a long position is opened for 1 ETH with 1x leverage. The user's account and position conditions at this time are as follows (assuming the maintenance margin rate is 0.4%, and the taker fee rate is 0.04 %)
Net Asset Value (Account Equity) = Account balance + unrealized PnL of all positions
2,000 + 0 + 0 = 2,000 USDT
BTC position's initial margin = average position price * position quantity / leverage
10,000 * 1 /10 = 1,000 USDT
ETH position's initial margin = average position price * position quantity / leverage
5,000 * 1 / 10 = 500 USDT
Available margin = Max [0, account balance - position margin + BTC position's unrealized loss + ETH position's unrealized loss - frozen assets of pending orders]
Max [0, 2,000 - (1,000 + 500) + 0 + 0 -0] =500
Liquidation price for BTC position = [Position value - (Available margin + initial margin - maintenance margin)] / [(1 - taker fee rate) * position quantity]
[10,000 - ( 500 + 1,000 - 10,000*0.4% )] / [( 1 - 0.04% ) * 1] = 8,543.42
Liquidation price for ETH position = [Position value - (Available margin + initial margin - maintenance margin)] / [(1 - taker fee rate) * position quantity]
[5,000 - ( 500 + 500 - 5,000*0.4% )] / [( 1 - 0.04% ) * 1] = 4,021.61
Bankruptcy price for BTC position = [Position value - (Available margin + initial margin - 0)] / [(1 - taker fee rate) * position quantity]
[10,000 - ( 500 + 1,000 - 0 )] / [( 1 - 0.04% ) * 1] = 8,503.41
Bankruptcy price for ETH position = [Position value - (Available margin + initial margin - 0)] / [(1 - taker fee rate) * position quantity]
[5,000 - ( 500 + 500 - 0 )] / [( 1 - 0.04% ) * 1] = 4,001.61
If the price of BTC/USDT falls to 8,543.42, forced liquidation of the BTC position will be triggered. The user's account and BTC position specifics are as follows:
BTC position's unrealized PnL = (Mark price - average position price) * position quantity
(8,543.42 - 10,000) * 1 = -1,456.68
Available margin = Max [0, balance - position margin + BTC position's unrealized loss + ETH position's unrealized loss - frozen assets of pending orders]
Max [0, 2,000 - (1,000 + 500) + (-1,456.68) + 0 - 0] = 0
BTC position's remaining margin = Max (0, position margin + available margin - unrealized loss)
Max (0, 1,000 + 500 - 1,456.68) = 43.32
Maintenance margin = Initial position value * maintenance margin rate
10,000 * 0.4% = 40
Taker fee = Initial position value * taker fee rate
10,000 * 0.04% = 4
At this point, the remaining margin of the BTC position is already ≤ maintenance margin + taker fee. When forced liquidation is triggered, the system will take over the user's position at the bankruptcy price of 8,503.41 USDT and place a liquidation order in the market.
If the price in the market is 8,510 USDT, there will be some margin remaining, which is
Forced liquidation market price - bankruptcy price * position quantity = (8,510 - 8,503.41) * 1 = 6.59, which will be transferred to the insurance fund.
If the liquidation market price is 8,490 USDT, negative equity will occur to the user's account, which is
Forced liquidation market price - bankruptcy price * position quantity = (8,490 - 8,503.41) * 1 = -13.41, the negative equity will be covered by the insurance fund.
After the BTC position has been liquidated, the ETH position would be as follows:
ETH position's remaining margin = Max (0, position margin + available margin - unrealized loss)
Max (0, 500 + 0 - 0) = 500
Liquidation price for ETH position = [Position value - (Available margin + initial margin - maintenance margin)] / [(1 - taker fee rate) * position quantity]
[5,000 - ( 0 + 500 - 5,000*0.4% )] / [( 1 - 0.04% ) * 1] = 4,521.81
Bankruptcy price for ETH position = [Position value - (Available margin + initial margin - 0)] / [(1 - taker fee rate) * position quantity]
[5,000 - ( 0 + 500 - 0 )] / [( 1 - 0.04% ) * 1 ] = 4,501.81
For more information, please read:
Margin Trading Terms of Perpetual Futures