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Introduction to Binance Futures
Liquidation
Binance
2020-07-05 07:12

Binance uses Mark Price to avoid unnecessary liquidations and to combat market manipulation. 

Risk and Leverage are adjusted based on the customer’s total exposure; the larger the total position, the higher the required margin, and the lower the leverage. A liquidation is triggered when 

Collateral = Initial Collateral + Realized PnL + Unrealized PnL < Maintenance Margin

On liquidation, all open orders are immediately cancelled. All traders will be subject to the same liquidation protocols referred to as “Smart Liquidation.” Binance avoids full clear of the user’s position whenever possible, and a precise example is listed below. For any traders that are cleared via forced liquidation and not by an order issued from the trader, a liquidation fee (0.3% on BTC/USDT perpetual contract; 0.5% on 75x futures contracts and 0.75% on 50x futures contracts) will be charged on the amount liquidated only (not the notional value of the position).

All orders will be issued at the bankruptcy price on the market. If the position cannot be fully closed, the insurance fund and / or counterparty-liquidation will take effect. The insurance fund will accumulate USDT reserves based on liquidations above the bankruptcy price from the liquidation fee rate.

It is important to mention that, as a general rule, users who hold relatively smaller positions that enter liquidation will almost always be fully liquidated. Larger users will see a smaller percentage of their accounts liquidated compared to smaller users. This is because maintenance margin is based around a user’s position size, and not their leverage selection. As a result, for smaller users, the effective maintenance margin is lower than the liquidation fee rate, so they are already bankrupt when first entering liquidation, regardless of the final price when clearing.

Note that all orders for liquidations are Immediate or Cancel orders. The order will fill as much as possible, and cancel the rest. This is different from a Fill or Kill order which will only execute if the order can be completely executed, and will be cancelled, if otherwise. The remaining positions will be either assigned to the insurance fund or counterparty liquidated.

For all traders, the system will first cancel all open orders, then attempt to reduce the trader’s margin usage with one *single* large Immediate or Cancel order without fully liquidating the trader.  If the trader is margin compliant after the order and liquidation fee, the liquidation event is over. If the trader is still margin deficient, the trader’s position will be closed down at the bankruptcy price and the insurance fund will take over the position, and the trader is declared bankrupt. A portion of the remaining collateral (if any) will go to the insurance fund. If an account becomes bankrupt (negative wallet balance), the insurance fund will pay out to bring the account's balance back to 0.

About Liquidation Price

Liquidation occurs when Mark Price hits the liquidation price of a position.Traders are advised to pay close attention to the movement of Mark Price and the liquidation price to avoid an open position being liquidated.

In hedge mode, both long and short positions of the same contract are sharing the same liquidation price in cross margin mode.

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If both long and short positions of the same contract are in isolated mode, the positions will have two different liquidation prices depending on the margin allocated to the positions.

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Binance allows for highly leveraged trading by using a sophisticated risk engine and liquidation model. The liquidation model might be intricate. Alternatively, you could use the built-in calculator to calculate the liquidation price.

 


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