Liquidation Mechanism and Liquidation Price Calculation (USDT-Margined Perpetual Contracts)

I. Overview of the Liquidation Mechanism

NewCoin's USDT-margined perpetual contracts use the Mark Price as the benchmark for calculating forced liquidation and unrealized profit and loss (PnL). This approach helps avoid unfair liquidations caused by short-term liquidity shortages or abnormal market volatility.

Liquidation triggers, liquidation prices, and unrealized PnL are all calculated based on the Mark Price, not the last traded price.

II. Conditions for Triggering Forced Liquidation

1️⃣ Isolated Margin Mode

In Isolated Margin mode, the margin for each position is independent, and risk is confined to that specific position.

Trigger Condition: Position Margin + Unrealized PnL ≤ Maintenance Margin Or equivalently: Margin Ratio = 100%

When this condition is met, the specific position will be liquidated. This does not affect other positions or the available balance in the account.

2️⃣ Cross Margin Mode

In Cross Margin mode, all available balances in the account are shared among all positions.

Trigger Condition: Cross Account Equity (excluding Isolated Margin, Isolated Unrealized PnL, and all order margin) ≤ Cross Maintenance Margin Or equivalently: Margin Ratio = 100%

In Cross Margin mode, the profit or loss of other positions in the account directly impacts the liquidation price.

III. Liquidation Execution Process

Once a position meets the liquidation condition, it enters the NewCoin Liquidation Engine for processing.

1. The system takes over the position at the Liquidation Price.

2. Liquidation does not go through the matching engine.

3. The Liquidation Price will not appear in trade history or candlestick charts.

Post-Liquidation Logic:

• If the position can be closed at a price better than the Liquidation Price → The remaining margin is injected into the Insurance Fund.

• If it cannot be closed, resulting in an over-loss (debt) → The loss is primarily covered by the Insurance Fund.

• If the Insurance Fund is insufficient → The Auto-Deleveraging (ADL) mechanism is activated.

IV. Methods for Calculating Liquidation Price

A) Isolated Margin Mode

In Isolated Margin mode, each position has fixed margin, making the liquidation price relatively stable and calculable via formulas.

📌 Long (Buy) Position Liquidation Price ≈ Entry Price × (1 − Initial Margin Rate + Maintenance Margin Rate) / (1 − Maintenance Margin Rate)

📌 Short (Sell) Position Liquidation Price ≈ Entry Price × (1 + Initial Margin Rate − Maintenance Margin Rate) / (1 + Maintenance Margin Rate)

Definitions:

• Position Value = Contract Quantity × Entry Price

• Initial Margin (IM) = Position Value / Leverage

• Maintenance Margin (MM) = Position Value × Maintenance Margin Rate (MMR) − Deductions

• Maintenance Margin Rate (MMR) varies with the risk limit tier.

Example 1: Isolated Long Position

• Leverage: 50x

• Entry Price: 20,000 USDT

• Quantity: 1 BTC

• MMR: 0.5%

• Calculation:

  • Initial Margin = 20,000 / 50 = 400 USDT

  • Maintenance Margin = 20,000 × 0.5% = 100 USDT

Example 2: Isolated Short Position (with Added Margin)

• Entry Price: 20,000 USDT

• Leverage: 50x

• Quantity: 1 BTC

• Added Margin: 3,000 USDT (Calculation logic follows the general formula with adjusted margin.)

Example 3: Isolated Long Position (Funding Fee Deduction)

• Funding Fee Incurred: 200 USDT

• If the available balance is insufficient, the fee is deducted from the position margin.

• Funding fees reduce the position margin, bringing the liquidation price closer to the Mark Price.

B) Cross Margin Mode

In Cross Margin mode, the liquidation price fluctuates in real-time based on the account's available balance and the PnL of other positions; it is not fixed.

Example 1 (No Open PnL):

• Leverage: 100x

• Entry Price: 10,000 USDT

• Quantity: 2 BTC

• Available Balance: 2,000 USDT

• MMR: 0.5%

• Calculation:

  • Maintenance Margin = 2 × 10,000 × 0.5% = 100 USDT

  • Sustainable Loss = 2,000 − 100 = 1,900 USDT

  • Tolerable Price Drop = 1,900 / 2 = 950 USDT

  • Liquidation Price = 10,000 − 950 = 9,050 USDT

Example 2 (With Open Profit):

• Current Price: 10,500 USDT

• Open Profit: 1,000 USDT

• Calculation:

  • Sustainable Loss = Available Balance + Initial Margin − Maintenance Margin + Open Profit

  • = 1,800 + 200 − 100 + 1,000 = 2,900 USDT

  • Liquidation Price = 10,500 − (2,900 / 2) = 9,050 USDT

Summary of Cross Margin Liquidation Price Formulas:

• With Open Profit:

  • Long Position LP = [Entry Price − (Available Balance + IM − MM)] / Net Position Size

  • Short Position LP = [Entry Price + (Available Balance + IM − MM)] / Net Position Size

• With Open Loss:

  • Long Position LP = [Current Mark Price − (Available Balance + IM − MM)] / Net Position Size

  • Short Position LP = [Current Mark Price + (Available Balance + IM − MM)] / Net Position Size

⚠️ Note: The actual liquidation price may have slight deviations due to closing fees.

V. Risk Management Recommendations

To effectively reduce liquidation risk, NewCoin recommends that you:

• Choose leverage levels rationally.

• Maintain sufficient margin.

• Monitor changes in the Mark Price.

• Proactively reduce positions or set stop-losses ahead of extreme market conditions.

VI. Inquiry and Support

You can view the following on the futures trading page:

• Real-time Mark Price

• Current Liquidation Price

• Maintenance Margin Rate and Risk Level

For further assistance, please contact NewCoin's online customer support.