What is forced liquidation？
The margin is an important indicator to maintain position risk. When the margin is insufficient, your position will be forced to close.
Forced Liquidation Mechanism
The forced liquidation mechanism of the perpetual contract is based on the spot index price. When the margin is insufficient, it will trigger the forced liquidation process.
To avoid price and market manipulation and protect users from financial losses caused by forced liquidation, the platform pegs the market with the spot index price, instead of the platform price.
For example, the current BTC/USDT platform price is 4000 with the spot index price at 4050. You can only trade with the platform price when you open a position, but your profit and loss are calculated by 4050, the spot index price.
If at a time the platform price moves to 3700 due to some unknown factors and the spot index price remains at 4050, your profit or loss will still be calculated at 4050 and will not be affected by the price fluctuation of the platform.
However, if you decide to close your position at this time, your strike price will be 3700 because the price must match the counterbid in the market of Bibox.
When the user's position reaches the forced liquidation price, the system will automatically take over to place the position in the market with the optimized price. When the position is taken over by Bibox liquidation engine but cannot be filled by bankruptcy price, then it will cause losses on liquidation. The precondition of the triggering of the Insurance Fund is that ADL mechanism causes profitable users loss. The Insurance Fund will compensate for the loss.
The system will rank contract trading users according to the position risk and profit status. In the case of users suffering loss on liquidation the automatic position deduction mechanism will be triggered to deduct users' positions starting from the users with the highest risks and profits.
When a current position profits: rank = (index price - average position opening price) / average position opening price * index price / abs (index price - bankruptcy price)
When a current position loses: rank = (index price - average position opening price) / average position opening price / index price * abs (index price - bankruptcy price)