Liquidation

Binance uses Mark Price to avoid unnecessary liquidations and to combat market manipulation. See the relevant section for more information.

Risk and Leverage is adjusted based on the customer’s total exposure; the larger the total position, the higher the required margin, and the lower the leverage. 

A liquidation is triggered when

$$Collateral=InitialCollateral+RealizedPnL+UnrealizedPnL<MaintenanceMargin$$

On liquidation, all open orders are immediately cancelled. Depending on the trader’s leverage, different liquidations will occur. Specifically, traders in the first bracket, or below 500,000 USDT in net exposure, will be fully liquidated. A fee of up to 0.5% of the NOMINAL position value will be charged. It is HIGHLY RECOMMENDED that traders liquidate before collateral falls below the maintenance margin to avoid these fees.

If the account has more than 0.5% nominal value left after liquidation, the remainder is returned to the trader. If it has less than 0.5%, the trader is bankrupt; if the amount is negative after liquidation, the exchange will assume the positions and/or losses.

For traders who are fully liquidated, the position will be completely cleared at the bankruptcy price on the market. If this is not possible, the insurance fund and / or counterparty-liquidationwill take effect. The insurance fund will accumulate USDT reserves based on liquidations above the bankruptcy price.

Note that all orders for liquidations are Immediate or Cancel orders. The order will fill as much as possible, and cancel the rest. This is different than a Fill or Kill order which will only execute if the order can be completely executed, and will be cancelled, if otherwise. Remaining positions will be either assigned to the insurance fund or counterparty liquidated.

If the trader is not at the highest leverage, and thus has more than 500,000 USDT in exposure, the system will first cancel all open orders, then attempt to reduce the trader’s margin usage with one single large Immediate or Cancel order without fully liquidating the trader. The trader will be left with 10% additional margin to protect against immediate follow-up liquidation.

Let’s walk through a sample of how this works. 

Following the sample in the leverage page, suppose the trader has 6,000,000 USDT in exposure, and 300,000 in collateral.

The trader’s maintenance margin usage is: 

  12,500 (for the first 500,000 exposure from 0-500,000) 
+ 75,000 (for the next 1,500,000 exposure from 500,000 to 2,000,000) 
+ 225,000 (for the next 3,000,000 in exposure from 2,000,000 to 5,000,000) 
+ 100,000 (for the 1,000,000 in exposure from 5,000,000 to 6,000,000) 

= 412,500

The trader is deficient 412,500 - 300,000 or 112,500 in margin. 
We need to clear 112,500 + 10% of 412,500 = 153,750 in total margin.

We use primarily Immediate or Cancel orders to handle liquidations. An Immediate or Cancel will attempt to fill as much of the order as possible at the given price, and cancel all remaining orders. This differs from a Fill or Kill order, as the latter will either fill all of the order, or none of it. An Immediate or Cancel order is allowed to partially fill the order.

The Immediate or Cancel (IOC) price is at the bankruptcy price. We will calculate the notional value to be liquidated to meet the margin requirements. We start with the highest risk tier and go down until satisfied. In this case, we need to fully liquidate the highest risk group, and 53,750 from the second highest risk group.

Notional quantity in USDT would be 1,000,000 (highest risk group) + 53,750 $\times$ 13.34 (second highest risk group) = 1,717,025,. This would be a IOC order at bankruptcy price, with quantity = 1,717,025 USDT notional value.

If the order fills completely, the client will no longer be margin deficient, and will pay the normal exchange fee for this transaction. The client is strongly recommended to continue manual liquidations to avoid future automatic liquidations. If the order fails to fill completely, the client’s account is declared bankrupt, value is set to 0, and the account is closed. The insurance fund and/or counterparty liquidation will take over the remaining positions.