The loan-to-value (LTV) ratio is a measurement for evaluating lending risk. The ratio measures the notional value of a loan against the market value of its collateral. For instance, a high LTV ratio represents a high financial risk.
How to Calculate LTV?
LTV = Loan Amount / Collateral Amount x 100%
*Loan Amount = Principal + Interests
Example: 1 BTC is equivalent to 7,400 USD on 2020/03/12 9:00 AM UTC, thus 0.01938571 BTC equals to 143.45 USDT
LTV (%) = 100 USDT / 0.01938571 BTC x 100%
= 100 USDT / 143.45 USDT x 100%
LTV and Liquidation
Binance uses the LTV ratio to evaluate the risk level of your cross collaterals. Your collateralized assets will face liquidation if the LTV ratio reaches a certain threshold. If there are still assets remaining after the liquidation, they will be returned to your Spot Wallet in the original asset.
When the LTV ratio reaches the Margin Call level, you will receive a margin call notification via email, inmail, and SMS, prompting you to add collateral to reduce the risk of liquidation. When the LTV ratio reaches the Liquidation Call level, it triggers a forced liquidation on your collateralized assets. After this, a liquidation call notification via email, inmail, and SMS will be sent out to notify you.
Upon liquidation, a liquidation fee will be imposed, this fee is calculated based on 1% of the loan amount. Please note that the liquidation fee on collateral here is different from the liquidation fee of your position in futures. During extreme price movements, you might be charged both liquidation fees on collaterals and your futures position at the same time. Please refer to Liquidation Protocol for the fees imposed on your futures positions.
Risk Warning: Binance uses commercially reasonable effort to send margin call notifications to the users if the LTV ratio falls below a certain threshold. There may be instances where the users fail to receive the notification on time due to network delay, computer system failures, and other force majeure. Binance will not be liable for any loss that might arise from your use of this feature. Please use it at your own discretion and risk.
How to prevent liquidation?
You can always adjust the LTV ratio to avoid the liquidation of collaterals.
1. Go to [Wallet] - [Futures].
2. Scroll down and click [Collaterals] to see all your collaterals. Click [Adjust LTV] next to the collateral you want to adjust.
For example, the LTV level is 43.88% for BTC.
3. Choose [Add] if you would like to lower your LTV ratio. A lower LTV ratio represents a lower risk. Fill in the amount of collateral you would like to top up. A new LTV ratio will be shown. Click [Add Collateral] to confirm.
4. Your LTV ratio is now lowered to 32.73% as you have added more collateral to your account.
5. You may remove some collateral amount out of your account by choosing [Remove]. Fill in the amount you would like to remove and click [Remove Collateral] to confirm.
6. The latest LTV ratio is increased to 44.21% after removing the collateral amount from your account. Please monitor your LTV ratio level proactively to avoid liquidation of collateral during extreme price movement.