Liquidation
In case the currency pair price on the market (Mark Price) equals the Liquidation Price for a certain contract, this contract will be liquidated.
Before the contract is liquidated, the system will try to close it at the current Market Price:
1. First the system will use part of the margin collateral to cover the loss. In case a part of the collateral remains, it will be returned to the trader.
2. If the loss cannot be covered by margin collateral, the position will be covered by the Insurance Fund.
3. If the Insurance Fund cannot process the position, the system will try to cover the loss with the ADL procedure.
To avoid liquidation, a trader can either close the contract before the liquidation or increase the margin collateral for this contract.
The mechanism also takes potential funding and penalties into account. Hence, if the Funding Rate has increased, and the trader used a high Leverage and they don’t have enough collateral to deduct the Funding Fee from, the position can also be liquidated. Upon liquidation, a penalty of 0.3% of the position volume is deducted from the trader’s account.
Liquidation Price is a dynamic parameter, so in case of any changes on the market or in your position data, the Liquidation Price will change as well. It is calculated as follows:
Pe - entry price
Mp - position margin
Q - position quantity
fliq = liquidation fee
rf - funding rate
n - funding rate
rmm - maintenance margin rate
Isolated Margin
Changelly PRO Margin Trading feature uses the Isolated Margin allowing traders to manage the risk on their individual positions by restricting the amount of margin allocated to each one, effectively altering the leverage of that position. If a trader’s position is liquidated in the Isolated Margin mode, instead of their entire margin balance, only the Isolated Margin balance gets liquidated. Also positions that are about to be liquidated can be deterred from being passed on to the Liquidation Engine by adding more collateral.
For instance, if a trader opens a long margin trade on BTC-ETH market with a margin amount of 1 BTC and the 2x leverage, their total order value is 2 BTC and the amount they're risking is 1 BTC. It also means that in case of the BTC price going down the order will still be open until the BTC price decreases by 50%.
In case the trader assumes that the BTC price will be going up, they may increase the leverage to 10x by decreasing the margin amount accordingly - to 0.2 BTC. Thus, the trader will lower their risks. However, in such a case the position will be liquidated in case of a price drop of 10%.