Binance Futures Liquidation Protocols

Last updated: 29 May 2024

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

What is the difference between Mark Price and Last Price?

To avoid spikes and unnecessary liquidations during periods of high volatility, Binance Futures uses Last Price and Mark Price.

Last Price refers to the latest transaction price the contract was traded at. In other words, the last trade in trading history defines the Last Price. It’s used for calculating your realized PnL (Profit and Loss).

On the other hand, Mark Price is calculated using a combination of funding data and a basket of price data from multiple spot exchanges. Your liquidation prices and unrealized PnL are calculated based on the Mark Price.

You can switch between the two prices on both the app and the website.

If you’re using the app:

Go to [Futures]. Make sure you’re using the [Classic] trade mode. You can switch trade modes by tapping [...].

Tap the chart icon. Then, tap [Last Price] to switch.

If you’re using the website:

Click [Last Price] on the trading chart to switch.

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

Collateral = Initial Collateral + Realized PnL + Unrealized PnL

It is important to note that the maintenance margin change will directly affect the liquidation price (Margin Ratio = Maintenance Margin / Margin Balance). To avoid being liquidated (i.e., margin ratio hits 100%), please add more margin or reduce your positions. It is recommended to keep a margin ratio below 80%.

How to calculate the liquidation price?

Liquidation occurs when the Mark Price hits the liquidation price of a position. You are advised to pay close attention to the movements of the Mark Price and the liquidation price to avoid being liquidated.

In the Hedge Mode, both long and short positions of the same symbol share the same liquidation price in the Cross Margin Mode.

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

Binance allows highly leveraged trading by using a sophisticated risk engine and a liquidation model that might be intricate.

Please note that liquidation will always be triggered when a position’s Mark Price reaches its liquidation price. However, there may be a discrepancy between the order’s liquidation price displayed on the Liquidation History tab and the actual price at which the position was liquidated. This discrepancy often happens in a volatile market (the Mark Price is not linear).

For example, you open a short position of BTCUSDT with a Mark Price of 17,000 USDT and the system calculates the position’s liquidation price to be 17,006 USDT. When the market is extremely volatile, the Mark Price could quickly jump from 17,000 USDT to 17,100 USDT within a second, causing the position to be liquidated at a Mark Price of 17,100 USDT instead of the liquidation price initially calculated (17,006 USDT). You will also see that the liquidation price is 17,100 USDT in the Liquidation History tab.
Alternatively, you could use the Futures calculator to determine the liquidation price.

To find more about the calculation of Liquidation Price, please refer to:

• How to Calculate Liquidation Price of USDⓈ-M Futures Contracts
• How to Calculate Liquidation Price of COIN-M Futures Contracts

When and why does liquidation of a futures position occur?

A trader’s futures position will be liquidated if the collateral made available by the trader to maintain the position is less than the margin required to maintain the position. A position will be considered bankrupt if the balance of the assets made available by the trader for that position following liquidation is less than 0, or if the position cannot be liquidated (“Bankrupt Position”).

Please note that generally, smaller positions are more likely to be fully liquidated in a liquidation scenario, as compared to larger positions. This is because the margin required to maintain a position is calculated based on the size of the relevant position and not on the amount of leverage used. As a result, the effective Maintenance Margin may be lower than the liquidation clearance fee rate for users with a smaller position size, which may result in smaller positions being bankrupt when they enter liquidation, regardless of the final clearing price.

What happens during liquidation?

All traders are subject to the same liquidation protocol, referred to as “Smart Liquidation”, under which Binance tries to avoid the full liquidation of a position where possible. If a trader’s position is liquidated, all open orders of the trader (in cross margin mode) or all open orders of the trader in the same token (in isolated margin mode) will immediately be canceled.

The system will first attempt to reduce the trader’s margin deficit without fully liquidating the position, by issuing one large Immediate or Cancel order (“IOCO”) to offload the position into the market. This means that the IOCO will be filled as much as possible and any portion of the IOCO that cannot be filled will be canceled.

If the assets available to maintain the position after the IOCO are at least equal to the margin required to maintain the position (after deducting realized losses and the Liquidation Clearance Fee), the liquidation will stop.

If any portion of the IOCO is unfilled and subsequently canceled, the remaining portion of the liquidated position will be a Bankrupt Position and will be taken over by the Futures Insurance Fund to the extent possible, with the Futures Insurance Fund bearing any losses arising from the Bankrupt Position.

If the position is liquidated in full but thereafter the trader’s balance of assets made available for that position is less than 0, the shortfall with respect to the liquidated position will also be a Bankrupt Position. The bankrupt position will be closed at the bankruptcy price and the Futures Insurance Fund will bear any losses arising from the Bankrupt Position to the extent possible.

To the extent possible, Binance will take over the portion of the position that is a Bankrupt Position. The Futures Insurance Fund will bear the losses arising from the Bankrupt Position, any profit arising from the Bankrupt Position will also be retained by the Futures Insurance Fund. If the losses arising from a Bankrupt Position cannot be funded by the Futures Insurance Funds, the matching engine will automatically liquidate the Bankrupt Positions and some opposing non-bankrupt trader’s’ positions. This process is called “Auto-Deleveraging”.

Please refer to “What is ADL and How Does It Work?” for more information about the bankruptcy price and how it is determined as well as Auto-Deleveraging and how it works.

Automated Negative Balance Clearance

If a trader’s account balance is negative due to one or more Bankrupt Positions, Binance will use the Futures Insurance Fund to automatically cover the deficit in the trader’s account and absorb the losses, to the extent possible.

Automated negative balance clearance will be performed every ten minutes for user accounts that meet the following requirements:

• Multi-Assets Mode is not activated.
• For negative balances in USDⓈ-Margined accounts, there are no open positions (cross or isolated) in the account.
• For negative balances in Coin-Margined accounts, there are no open positions (cross or isolated) in the account.
• The user did not transfer any funds to deficit losses in the account after liquidation.

If you don't meet the criteria described above, please contact our Customer Service agents for assistance.

Liquidation Clearance Fee

When a position is liquidated, a portion of the assets that have been made available to maintain the position will be deducted and paid to Binance as a Liquidation Clearance Fee, unless the position is a Bankrupt Position following liquidation. The Liquidation Clearance Fee will be marked as “Liquidation Clearance” in the trader’s transaction history.

The Liquidation Clearance Fee will be calculated based on the applicable Liquidation Clearance Fee rate and the notional value of the position. Please refer to the trading rules for more information about Liquidation Clearance Fees and the Liquidation Clearance Fee rates.

Binance strongly encourages traders to strictly control their position risk to avoid liquidation of positions. Please note that:

• In volatile market conditions, it is possible that the Futures Insurance Fund will directly take over the liquidation positions. Please note that the Futures Insurance Fund will take over the liquidation positions at the bankruptcy price, which may be less favourable than the liquidation price and may result in traders suffering greater loss.
• Binance will use reasonable endeavours (but has no obligation) to send margin call and liquidation call notifications by email and internal messages. Binance has no responsibility for and does not in any way guarantee the timely delivery of such messages. The notifications serve as a risk warning and it is solely the trader’s responsibility to take appropriate action and avoid the liquidation of their positions. Please note that if the margin call time and liquidation call time are too close, the margin call notification will be automatically canceled by the system and only a liquidation call notification will be dispatched.

*Disclaimer: The numbers in this article are subject to change without further notice. Please refer to the English version for the most updated numbers.