Auto-Deleveraging

Overview

If your position is liquidated, it will be taken over by the liquidation engine at BaseFEX. And in case the position cannot be fulfilled when the mark price touches the bankruptcy price, the Auto-Deleveraging system will automatically deleverage the positions owned by opposing traders according to profit and leverage priority.

The price where your position is closed is the bankruptcy price of the initial liquidated order.

Auto-Deleveraging Ranking

At BaseFEX, you can check your position in a queue presented by an indicator, and your priority will be categorized into 5 bars shown as below:

As you can see from the example, if all of the five bars are lit, it means you position is in the top 20%. While if the liquidation cannot be finished in the market, your position will be deleveraged.

At BaseFEX, the Insurance Fund is used to prevent the Auto-Deleveraging from occuring. If your contract is used up, then comes the Auto-Deleveraging.

Once you are deleveraged, a notification will be sent to you. Your open orders will be canceled and you can re-enter the market later.

Priority Ranking Calculation

At BaseFEX, your deleveraging priority is calculated by your profit and leverage. The more profitable and the higher leveraged positions are to be deleveraged first.

Here is the calculation:

Ranking = PNL Percentage * Effective Leverage  (if PNL percentage > 0)
        = PNL Percentage / Effective Leverage  (if PNL percentage < 0)

where

Effective Leverage = abs(Mark Value) / (Mark Value - Bankrupt Value)
PNL percentage = (Mark Value - Avg Entry Value) / abs(Avg Entry Value)
Mark Value = Position Value at Mark Price
Bankrupt Value = Position Value at Bankruptcy Price
Avg Entry Value = Position Value at Average Entry Price

The system will split the positions by longs and shorts, and then ranks them from highest to lowest according to their leverage.

Auto-Deleveraging Example

At BaseFEX, the Auto-Deleveraging system avoids the sociallization of losses, because if the losses have to be socialized, then

  • One single risky trader might cause a huge loss for all traders, even the low-risk traders.
  • Your profit has to be locked until the system is rebalanced or settled in case of any losses.

The Auto-Deleveraging system is aiming at reducing loss uncertainty and allowing traders to make decisions as soon as the deleveraging happens, which means you do not have to wait for rebalancing or settlement. Once your position is deleveraged, you will be informed of your closing price and size and then you can re-enter the market soon.

Example of Auto-Deleveraging and the Ranking system

Imagine that there are 6 longs within the trading system and their effective leveraged PNL has been calculated. The higher the PNL ranking, the higher the effective leveraged PNL.

Account Quantity PNL Ranking
1 10 3
2 10 6
3 20 1
4 30 4
5 20 5
6 10 2

The trading system will then rank these positions from the highest to the lowest and calculate the percentage related to each position.

Account Quantity PNL Ranking Percentage
2 10 6 20%
5 20 5 40%
4 30 4 60%
1 10 3 80%
6 10 2 80%
3 20 1 100%

When a liquidation happens, traders in the top percentage will be deleveraged first. For example, if a short position was liquidated with size 20 and its bankruptcy price is USD 650.

Account 2 and 5 will be deleveraged at the bankruptcy price of USD 650. 10 contracts at Account 2 will be closed, and the remaining 10 contracts from the short liquidation will be accredited to Account 5.

Account 5 will then have 10 contracts remaining (from 20). It depends on the effective leverage whether Account 5 will stay in the lowest percentage or not.

Both traders will be informed and have the chance to re-enter their positions.

API Data

Please visit the WebSocket Documentation for detailed information.

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