Liquidation - Overview
The Perpetual Contracts at BaseFEX can be leveraged up to 100x. To keep their positions open, traders are required to hold a percentage of the value of the position on the exchange, known as the Maintenance Margin percentage. Minimum Maintenance Margin Requirements can be reviewed on the Risk Limits Page.
If you cannot fulfill your maintenance margin requirement, you will be liquidated, and your maintenance margin will be lost.
You can review your liquidation price per position via the Open Positions Tab and adjust by adding more margin via the Leverage Slider or the Risk Limits tab.
Minimization of Liquidations
BaseFEX uses Fair Price Marking to avoid liquidation due to illiquid markets or price manipulation.
Risk Limits are also imposed that require higher margin levels for larger position sizes. This gives the BaseFEX liquidation system more usable margin to effectively close large positions that would otherwise be difficult to close safely. If it is safe to do, larger positions are incrementally liquidated.
If liquidation is triggered, BaseFEX will cancel any open orders on the current contract in an attempt to free up margin and maintain the position. Orders on other contracts will remain open.
BaseFEX employs a partial liquidation process involving automatic reduction of maintenance margin in an attempt to avoid a full liquidation of a trader’s position.
Users on the Lowest Risk Limit tiers
- BaseFEX cancels any open orders in the contract.
- If this does not satisfy the maintenance margin requirement, then the position will be liquidated by the liquidation engine at the bankruptcy price.
Users on Higher Risk Limit tiers
The liquidation system attempts to bring a user down to a lower Risk Limit, and thus lower margin requirements by:
- Attempting to bring a user down to a Risk Limit associated with their open orders and current position.
- Canceling any open orders and then attempting to bring a user down to a Risk Limit associated with their current position.
- Submitting a FillOrKill order of the difference between the current Risk Limit position size and the position size to satisfy the margin requirement to avoid liquidation.
- If the position is still in liquidation, then the entire position is taken over by the liquidation engine, and a limit order to close the position is placed at the bankruptcy price.
System Profits and Losses
If BaseFEX can liquidate the position at better than the bankruptcy price, the additional funds will be added to the Insurance Fund.
If BaseFEX is unable to liquidate the position at the bankruptcy price, BaseFEX will spend the Insurance Funds on aggressing the position in the market in an attempt to close it. If this still does not close the liquidated order, this will then lead to an Auto-Deleveraging event.