To help you better understand and manage the risks of contract trading, this article explains the liquidation price, bankruptcy price, and the triggering conditions and handling procedures for contract liquidation. These concepts are closely related to margin management.
What Is the Liquidation Price?
The liquidation price refers to the price at which liquidation may be triggered when the mark price reaches a specific level. When the mark price of a contract reaches the corresponding level, the system will handle the relevant position according to the liquidation rules to control further risks.
The criteria for triggering liquidation are:
Actual margin ratio at a given price ≤ maintenance margin ratio under the current tier
What Is the Bankruptcy Price?
The bankruptcy price refers to the price level at which the margin for a position is insufficient to cover further losses and related fees. The bankruptcy price is related to risk handling after liquidation and is not the price that triggers liquidation.
What Is the Difference Between the Liquidation Price and the Bankruptcy Price?
Comparison item | Liquidation price | Bankruptcy price |
What it represents | The price corresponding to when a position meets the liquidation conditions | The price level corresponding to when the margin for a position is depleted |
Primary purpose | Determines when liquidation is triggered | Used to understand risk handling after liquidation |
Is it the liquidation trigger price? | Yes | No |
Is it equal to the actual execution price? | Not necessarily | Not necessarily |
Under What Circumstances Will Liquidation Be Triggered?
Contract trading requires margin to maintain a position. When the market price fluctuates significantly and the margin status of a position fails to meet the maintenance margin requirement under the current tier, the system will trigger liquidation.
Astral uses the mark price as the basis for determining liquidation. The mark price may differ from the latest market execution price. Therefore, when assessing position risk, you should pay attention to the mark price and margin status.
What Happens After Liquidation Is Triggered?
Liquidation refers to the system forcibly closing the relevant position according to the contract rules. For a long position, closing the position requires selling; for a short position, closing the position requires buying. Market prices and liquidity will affect the actual execution result. During liquidation, the trading platform will automatically sell the trader’s long position or buy the trader’s short position to close the trader’s position. The liquidation price is generally calculated according to the trading platform’s rules or the market index price.
Two Common Methods for Calculating the Liquidation Price
The liquidation price is generally calculated according to the trading platform’s rules or the market index price. The specific calculation method may vary between trading platforms. The following are two common calculation methods:
1. Liquidation price calculation based on the mark price: The mark price is a specific price index used by the trading platform to reflect the overall price trend of the digital asset market. When a trader’s maintenance margin ratio falls below a certain threshold, the trading platform will switch the trader’s position to a valuation mode based on the mark price and then calculate the liquidation price. The liquidation price is generally a certain percentage of the mark price, with the specific percentage varying according to the trading platform’s rules.
2. Liquidation price calculation based on the contract index price: The contract index price is a price index calculated by the trading platform based on the real-time trading prices of multiple digital asset exchanges. When a trader’s maintenance margin ratio falls below a certain threshold, the trading platform will calculate the liquidation price based on the contract index price and the liquidation spread. The liquidation spread is one of the basic parameters specified by the trading platform for digital asset contract trading.
How Can Liquidation Risk Be Managed?
Before engaging in contract trading, please understand the applicable margin requirements and liquidation rules, and manage your position based on your risk tolerance. While holding a position, pay attention to the mark price, margin status, and risk information displayed on the trading page. When the market is volatile, promptly assess whether you need to adjust your position or margin.
Disclaimer
This article is provided for product explanation and educational reference only. It does not constitute investment, trading, financial, or legal advice, nor does it constitute an offer to buy or sell any digital asset. The examples in this article are for illustrative purposes only and do not include factors such as transaction fees or funding fees. Actual results may differ.
Product features, trading rules, fees, and page information may be adjusted. If this article is inconsistent with the latest announcements from AstralX or the information displayed on the trading page, the applicable latest rules and actual page information shall prevail.
Digital asset contract trading involves a high level of risk. Leverage magnifies the impact of price fluctuations on margin, and you may lose all of your invested margin. Before trading, please fully understand the product rules and make prudent decisions based on your financial situation and risk tolerance.