Ladder balancing mechanism

What is a forced balancing?

Margin rate is a measure of the risk of position-guaranteed assets, and when the margin rate is close to the minimum maintenance margin rate, the position will be forced to take over by the system. We use the marked price to calculate margin rates to avoid forced closing due to illiquidity or market manipulation.

About ladder reduction

In order to prevent large positions from closing when the impact on market liquidity, resulting in large losses, we use a ladder mechanism to reduce positions. Each ladder corresponds to a different maintenance margin rate, when the system determines that the margin is not enough for the current position, it will carry out the operation of reducing the number of positions to the next position.

After the position reaches the strong leveling condition, the system automatically performs the following measures to release the available margin in order to prevent the position from being closed:

1. All current orders for this variety contract will be cancelled;

2. The long and short positions of the contract with the variety will be traded from the deal;

If the margin rate of the user's position is still less than the current ladder maintenance margin rate after the above steps, a forced reduction operation will be carried out.

1. If the margin ratio is still < the current tiered maintenance margin ratio, the system will forcibly reduce the position to the net position limit of the next tier in order to lower the current tier, ensuring the margin ratio exceeds 0%.

2. If the system calculates that after forced position reduction to Adjustment Tier 1, the margin ratio still fails to exceed 0% and remain below 100%, then the entire position will be liquidated.

   During forced liquidation, users cannot perform any operations related to this contract product.

   Taking BTC as an example: When a user holds a large position at Tier 3 or above (i.e., the number of contracts held ≥ 12,001, for example: 15,000 contracts), and the liquidation engine detects that the user's current margin ratio is less than 0% or ≥ 100%, the system will not immediately liquidate the entire position. Instead, it will execute a forced partial position reduction.

   First, it calculates the number of contracts that need to be reduced to lower the position by two tiers: Reduction amount = Current contracts - Tier 1 maximum contracts = 15,000 - 2,000 = 13,000

If the user is in restrictive position mode, the system will force the user to hang the number of positions required to reduce the position in accordance with the delegate price slightly better than the latest closing price. During the forced partial reduction period, the user's position in that direction of the contract will be frozen and all contract-related operations will not be possible.