Leverage and Risk Control

Cross Margin Mode:

During the liquidation process, the following key price concepts need to be clarified:

Mark Price:
The risk ratio that triggers liquidation is calculated based on the mark price. The mark price is derived from indices of multiple platforms and more accurately reflects the fair value of the asset, helping to avoid liquidation risks caused by abnormal market fluctuations. When the margin maintenance ratio calculated based on the mark price (Position Maintenance Margin ÷ Total Account Equity) reaches 100%, the position will be liquidated.

Liquidation Price:
Reaching the liquidation price means that the assets in the account are reduced to just the maintenance margin, with all other assets lost. The system calculates the liquidation price for each contract type based on the account’s cross margin holdings, contract account balance, and unrealized PnL of all positions.

Bankruptcy Price:
The bankruptcy price indicates that all assets in the account are completely lost. The system uses the bankruptcy price as the price for liquidating the order.

Execution Price:
Once the system places an order at the bankruptcy price, the actual execution will depend on the counterparty's trade results. This price may differ slightly from the bankruptcy price. Currently, HashKey contracts use the system account to take over the position at the bankruptcy price, meaning that the execution price is generally equal to the bankruptcy price.

Isolated Margin Mode:
The liquidation process for isolated margin mode is similar to that of cross margin mode. The only difference lies in the mechanism for triggering liquidation:

• In cross margin mode, liquidation occurs when the overall account risk ratio reaches 100%.
• In isolated margin mode, the liquidation price is calculated individually for each position based on its specific margin. When the mark price reaches the liquidation price in isolated mode, the system initiates the liquidation process.

If Liquidation is Triggered:
All open orders will be canceled immediately.

For users with positions in the second tier or above of the position limit, the liquidation engine will attempt to reduce the user’s margin tier to lower the required margin by:

1. Canceling unfilled orders for the contract while retaining the existing position to reduce the user’s margin tier.
2. Submitting Immediate-Or-Cancel (IOC) orders. These orders will be filled as much as possible, with unfilled portions canceled.

If the position remains in liquidation status, the liquidation engine will take over the position at the bankruptcy price.

When Liquidation Executes at the Bankruptcy Price:

• If the position is executed at a price better than the bankruptcy price, any remaining margin will be added to the insurance fund.
• If the position cannot be executed at a price better than the bankruptcy price, the shortfall will be covered by the insurance fund.
• If the insurance fund reaches a predetermined threshold, the ADL (Auto-Deleveraging) logic will be triggered. In this case, accounts with the highest profits and lowest margin ratios will be more likely to be selected as counterparties for ADL, resulting in automatic position reduction.

1. Monitor Margin Ratio:

To avoid forced liquidation, it's essential to monitor the margin ratio of the futures while holding positions. If the margin ratio reaches 100%, the held position will be forcibly liquidated.
The margin ratio is calculated as Maintenance Margin / Margin Balance.
Once the margin balance falls below the maintenance margin, the trading platform will force the position to be liquidated.
To hedge against price declines, the futures account must deposit sufficient margin balances. The higher the margin balance, the lower the forced liquidation price.

2. Use Stop Loss Orders to Reduce Potential Losses:

Stop-loss orders are conditional orders that are executed at a specific price after reaching a preset stop-loss point. Once the stop-loss price is reached, the system will execute the order at market/limit price.
Stop-loss orders can help investors reduce position losses in unfavorable market conditions and avoid forced liquidation.