In crypto trading, Bitunix has implemented an advanced liquidation mechanism for futures positions, aiming to provide a more secure and transparent trading environment. This new system addresses key aspects of liquidation criteria, estimated liquidation prices, and the rationale behind liquidation before reaching the estimated Liquidation price, ensuring traders understand the risks involved.

What is the Estimated Liquidation Price?

The Estimated Liquidation Price on Bitunix shows the current price at which the trader’s position is closed by the exchange for insufficient margin. In trading with leverage, the profit/loss made is calculated in a manner that will make the necessary margin maintenance level get to the required liquidation price. 

The estimated market price to stop out is arrived at in such a way that, when this is achieved, it leads to the closure of the particular position so as not to allow losses to be made which would result in the use of the borrowed funds.

Calculation of the Estimated Liquidation Price

On Bitunix, the calculation of the Estimated Liquidation Price assumes a 100% correlation between assets when multiple perpetual positions are held. This conservative approach considers the worst-case scenario where all assets might move against the position simultaneously. 

The price is derived by analyzing potential losses and the corresponding market price movement that would trigger these losses, ensuring traders are aware of their risk exposure.

Liquidation Criteria for Futures Positions

Futures Trading Liquidation When trading in futures, the liquidation criteria that Bittunix uses for futures positions. These mechanisms help to level out risks between the trader and the platform and help to limit the losses that can be incurred especially in a volatile market

Risk Ratios and Liquidation

The liquidation of futures positions occurs when the position risk ratio hits 100%, indicating that the trader’s margin balance has fallen below the required maintenance margin. This critical threshold prompts either a reduction in the position or complete liquidation, thus safeguarding the involved parties from deeper financial risk.

Differences Between Liquidation Price and Estimated Liquidation Price

While both terms sound similar, they serve different purposes and are influenced by distinct factors within the trading environment on Bitunix.

Market Conditions and Price Estimates

The Estimated Liquidation Price is primarily a reference point, influenced by ongoing market conditions and the account’s current state. Traders need to recognize that this price is not static and can change with fluctuations in the market, which might lead to discrepancies between the estimated and actual executed liquidation prices.

Execution of Liquidation Orders

Actual liquidation orders are executed at what is known as the bankruptcy price, which can differ from the estimated liquidation price due to market volatility. This discrepancy is often observed during rapid price movements, where the executed liquidation price may deviate significantly from the estimated one.

Early Liquidation Before Reaching Estimated Price

Traders on Bitunix might notice their positions being liquidated before the last market price reaches the estimated liquidation price. This is because Bitunix uses the marked price for profit and loss (PnL) calculations and position liquidation. 

The mark price is derived from the spot index price and the basis difference, which can diverge from the last traded price, leading to early liquidation to mitigate potential losses.

Why Positions Are Liquidated Before the Last Price Reaches the Estimated Liquidation Price

Understanding the mechanics behind position liquidation on Bitunix is crucial for managing expectations and planning strategies accordingly.

The Role of Mark Price in Liquidations

Bitunix utilizes the mark price to calculate profit and loss (PnL) and to determine liquidation events. This price is often derived from a composite of several major exchange prices and may differ from the last traded price. 

The use of mark price helps mitigate the risks associated with price manipulation and extreme volatility, providing a more stable basis for liquidation decisions.

Liquidation Criteria for Futures Positions

The liquidation criteria for futures positions on Bitunix are straightforward. When the position risk ratio rises to 100%, meaning that the trader has a margin balance below the maintenance margin, a position is required to be closed or reduced. 

This criterion helps in the closure of trading positions not to allow the trader or the trading platform to incur huge losses that may be beyond the available margin.

Comprehensive Liquidation Mechanisms on Bitunix

Liquidation is an essential aspect of trading on leveraged exchanges like Bitunix. It involves several mechanisms designed to minimize the financial impact on traders and maintain the integrity of the trading platform.

Types of Liquidations

Bitunix implements both partial and total liquidations. Partial liquidations reduce a position early to decrease leverage and potential risk, while total liquidations close out a position completely when nearly all of the initial margin has been depleted.

Margin and Leverage Explained

Leverage trading is a strategy where an investor uses borrowed capital to enhance the possible gains in a specific contract. It also brings the risk of liquidation if the market shifts in the wrong direction, however, for experienced traders using this strategy can be quite beneficial. 

To open a leveraged position in Bitunix you are expected to pay a deposit called margin; the maintenance of this margin dictates whether the position is held open.

Margin Management: Isolated Margin and Auto-Margin Replenishment

Bitunix offers isolated margin mode and auto-margin replenishment (AMR) to manage margins effectively. Isolated margin mode does not draw additional margin to maintain a position, limiting potential losses. 

In contrast, AMR automatically replenishes the margin of a soon-to-be-liquidated position using the available margin, helping traders maintain their positions during market fluctuations.

Exit Strategies: TP/SL/Trailing Stops

Bitunix offers several ways to exit trades, such as Take-Profit, Stop-Loss, and Trailing-Stop orders. These automated orders allow traders to close their positions under specific conditions, thus avoiding liquidation. TP orders close positions at a profit, SL orders limit losses, and Trailing-Stop orders follow the highest price point to lock in profits and minimize losses.

Conclusion

For traders on Bitunix, understanding and monitoring the Estimated Liquidation Price is vital for effective risk management in leveraged trading. By comprehending how liquidations are triggered and what factors influence liquidation prices, traders can better prepare for the inherent risks of the cryptocurrency markets. 

This knowledge is crucial for both new and experienced traders aiming to navigate the complexities of futures trading on platforms like Bitunix.

Leave a Reply

Your email address will not be published. Required fields are marked *