## What are the Liquidation for Liquid Perpetual?

Liquid perpetual contract forced liquidation happens when the Margin Maintenance percentage is breached. We believe this model is greatly advantageous to our users, as it gives significantly more leeway when it comes to forced liquidations. To keep these positions open, traders are required to hold a percentage of margin maintenance of the position, known as the Maintenance Margin percentage.

## Trigger for Liquidation

Forced liquidation will be initiated when free balance plus PnL becomes equal to or lower than the Maintenance Margin level.

Liquidation of Liquid Perpetuals will differ from the current process in 2 aspects:

• Calculations to value positions or PnL will be based on the Mark price (NOT the market price)

• Maintenance Margin will be recalculated at settlement time, using the current Mark price

Formulas:

1. PNL = (current Mark Price - Reference Price)

2. Initial Margin = Quantity x Reference Price / Leverage

3. Maintenance Margin = Quantity x Reference Price x Margin Ratio

Reference Price = last Settlement Price (i.e Mark Price at last settlement price) or entry price (i.e actual buy/sell price) if the position has not yet been settled.

Maintenance Margin example:

Trader A buys 1 P-BTC at 10,0000 USD, Mark price is 10,005 USD.
Maintenance Margin MM = 10,000 x 0.5% = 50 USD
Assuming that the trader has free balance of 100 USD,

Margin Requirement is calculated as follows:

``Margin Ratio =  (Free Balance + PNL) / MM = (100 + 5) / 50 = 210%``

Since PNL is calculated as Mark Price - Entry Price (for long positions)

2. Margin requirements are calculated again at settlement time.

We assume that at next settlement time, P-BTC price moves to 10,045 USD. Mark Price is 10,050 USD.
New Maintenance Margin MM

``10,050 x 0.5% = 50.25 USD``

PNL =  10,050 - 10,0000 = 50 USD
Margin Ratio = (100 + 50) / 50.25 = 298%

If P-BTC price moves to 9,955 USD and Mark Price is 9,950 USD, calculations:
New Maintenance Margin

``9,950 x 0.5% = 49.75 USD``

PNL =  9,950 - 10,0000 = - 50 USD
Margin Ratio = (100 - 50) / 49.75 = 100.5%

## Choice of position to liquidate

In the case of several open positions, the criteria to select the position to liquidate first will not be changed from the current implementation.

The position with the biggest relative loss (ie total PnL of the position divided by the open amount) will be liquidated first.

## Quantity liquidated

In the current implementation, positions are fully liquidated by sending a market order corresponding to the total quantity of the position being liquidated.

In case of a large position being liquidated, there is a potential risk of a large price movement, which creates significant price instability and can even trigger additional liquidations. This is aggravated by the fact that the execution of a market order is an atomic process: the market order is fully executed before any new order can be added to the order book.

To help in reducing price instability, positions in Perpetual will be partially liquidated up to a maximum quantity M:

• If the open quantity is lower than M, then the position is liquidated fully

• If the open quantity is greater than M, then the system should create an at market order to liquidate a quantity equal to M. Once this order is executed, new orders will be added to the order book and the situation of the new position will be evaluated to decide if it should be further liquidated or not.

Deciding for a proper value to M should satisfy 2 constraints:

• The value should be high enough to reduce the position exposure by a significant amount

• The value should not be too high to avoid large price movement, which would increase the position exposure

Have questions about Perpetual Contracts and trading? Contact our Customer Support team now.