AOFEX Mechanism of Forced Liquidation

What is forced liquidation?

We are commonly known as "blow up". Risk rate is an indicator to measure the risk of user assets. When the risk rate is less than or equal to 10%, your position will be forced to close by the system.

• Risk rate= account equity/(position margin+frozen margin) * 100%

Warning rate：50%；when risk rate ≤ 50%, users will receive the early warning risk notice sent by the system and prepare the supplementary margin in advance.

Please note: In order to ensure the safety of the user's position, the platform will limit the newly added position when the risk rate is lower than the early warning rate, so as to avoid a liquidation event after the position is opened. When the pre-warning risk rate is lower than the pre-warning risk rate, it is necessary to supplement the margin so that the risk rate is higher than the pre-warning value before adding positions can be performed.

What is estimated liquidation price?

When risk rate =10%, calculated price (the price is only for reference), the actual liquidation price is subject to the latest transaction price when the risk ratio is 10%.

For example, if a user transfers 1000 USDT funds to BTC-USDT contract account and opens 5000 BTC perpetual swaps at the price of 10000USD and buys more than 10 times of opening, the risk rate of the account is 1000 / 500 * 100% = 200%;

Calculation of estimated liquidation price: When the risk rate is 10% (The risk rate varies from tokens and will be based on the specific parameters) , the account equity = 500 * 10% = 50USDT. According to the unrealized profit and loss formula, the estimated liquidation price = 10000-950 / (5000 / 10000) = 8100 USDT

What is mark price?

AOFEX adopts mark price to avoid forced liquidation caused by market manipulation. It is also a reasonable price used to calculate unrealized profit and loss. The comprehensive price is obtained by referring to the six spot market prices (Binance、HUOBI、OKEX、Bitfinex、Coinbase and Bitstamp) according to their volume.

Note: this means that you may see positive or negative unrealized gains and losses immediately after your order is executed. The reason for this is the slight deviation between the reasonable price and the transaction price. This is a normal phenomenon, does not mean that you have lost money, but must pay attention to the risk rate and forced liquidation price, to avoid being forced to close positions too early.

Risk Guarantee Fund

Risk Guarantee Fund: The purpose of the risk guarantee fund is to make up for the loss caused by the assets of the customer's account less than 0. The extra fees paid by the non bankrupt strong average users will be injected into the risk protection fund.

Use of risk reserve: if the user goes wearing, that is, after the user is forced liquidation, there is no surplus fund in the account or cannot be consolidated, AOFEX will take over the remaining position in the user's account. In this case, AOFEX will use the risk protection fund to do reverse liquidation, so as to reduce the losses of counter-parties caused by liquidation. When the risk protection fund is not enough to take over the residual position of forced liquidation, it will enter the allocation step for apportionment.

Click on "contract information" and select "risk protection fund". You can also enter:

Sharing Mechanism

When the market fluctuates greatly and the user is forced liquidation, the transaction cannot be completed according to the takeover price, resulting in a loss range greater than the risk reserve. The platform adopts the "apportionment" system. From the profit-making accounts of the current period, each account shares the loss of wearing according to the profit ratio.