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Options
Binance Vanilla Options
Auto Reduce Positions,Forced Liquidation and ADL
Binance
2020-12-25 06:30

Auto-Reduce and Forced Liquidation

For users who hold positions as Options Sellers, price fluctuations can trigger risk control. The risk control system has two steps:
As the trader’s Margin Balance goes below the Reduce Margin, auto-reduce is triggered.
When auto reduce is triggered, all the orders placed by the user will be canceled, and the user can not place any order until the auto reduce is stopped.
The system will automatically close the position that can most effectively reduce risk.
In this scenario, the user is unable to take out margin, but they can still transfer funds from their Spot account to ensure Margin Balance > the Reduce Margin, thereby avoiding Auto Reduce.
The system will then cancel the order and stop the auto reduce process if the trader’s Margin Balance goes above the Margin Reduce level.
However, the system will cancel the order and go into the Forced Liquidation phase if the Forced Liquidation is triggered.

Forced Counterparty Liquidation(Auto-deleveraging,ADL)

If the forced liquidation orders can not be fully filled by the market and market makers, the risk control system uses the forced counterparty liquidation model instead of forced liquidation. In most cases, the liquidation order will be resolved by the market and market makers.
After forced counterparty liquidation, the risk control system will match the force-liquidated positions directly with the highest-ranked positions, thereby ensuring that the orders get filled. For users who have a high earnings rate on Options positions they purchase and hold, their positions can be force-reduced when forced liquidation occurs.
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