KCEX Liquidation and Position Tier Guide: Liquidation Rules, Calculation Formulas, and Risk Mechanisms

Liquidation is an important risk control mechanism in perpetual futures trading. When a position’s margin ratio reaches the liquidation threshold specified by the platform, the system will process the position in accordance with the applicable rules. This article explains KCEX’s liquidation trigger conditions, margin ratio and estimated liquidation price calculations, tiered liquidation process, position tiers, maintenance margin rates, insurance fund, and Auto-Deleveraging mechanisms. It is intended to help you understand the causes of futures liquidation, the liquidation process, and position risk management rules.

1. Liquidation

1. What Is Liquidation?

Liquidation, also commonly referred to as a position being liquidated, occurs when a user’s position reaches the liquidation threshold and the platform forcibly takes over and closes the position. On KCEX, a position’s margin ratio is used to assess its risk level and serves as an indicator of the risk to the user’s assets. When the margin ratio reaches or exceeds 100%, the system will liquidate the user’s position. Users are advised to monitor changes in their margin ratio closely to avoid liquidation.

2. Liquidation Formulas

(1) Isolated-Margin Mode

Margin Ratio = (Maintenance Margin + Liquidation Fee) ÷ (Position Margin + Unrealized P&L) When the margin ratio is greater than or equal to 100%, liquidation of the isolated-margin position will be triggered.

(2) Cross-Margin Mode

Margin Ratio = (Cross-Margin Maintenance Margin + Liquidation Fee) ÷ Cross-Margin Account Equity

Cross-margin account equity excludes isolated-position margin, isolated-position unrealized P&L, and margin occupied by all pending orders.

When the margin ratio is greater than or equal to 100%, liquidation of all cross-margin positions will be triggered.

3. Liquidation Process

When liquidation is triggered, the system will perform tiered liquidation based on the user’s position tier to avoid liquidating the entire position and control the user’s risk.

(1) Order Cancellation

• In cross-margin mode, the system will cancel all current open orders in the account. If the margin ratio remains greater than or equal to 100% after the orders are cancelled, the system will proceed to Step (2).
• In isolated-margin mode, if Auto Margin Addition is not enabled, the system will proceed directly to Step (3). If Auto Margin Addition is enabled, the system will cancel all current open orders for the relevant futures pair and add margin to the isolated-margin position until the available margin is exhausted. If the margin ratio remains greater than or equal to 100%, the system will proceed to Step (3).

(2) Self-Matching of Long and Short Positions

Cross-margin positions held simultaneously in both the long and short directions will be self-matched for forced position reduction. This step applies only to the liquidation of cross-margin positions. If the margin ratio remains greater than or equal to 100% after the long and short positions are self-matched, the system will proceed to Step (3).

(3) Tiered Liquidation

If the user’s position is already in the lowest risk-limit tier, the system will proceed directly to Step (4).

If the position’s risk-limit tier is higher than Tier 1, the position must be moved to a lower tier. The liquidation engine will take over part of the position in the current tier at the bankruptcy price, resulting in a partial liquidation and lowering the risk-limit tier.

The system will then recalculate whether the margin ratio remains greater than or equal to 100% using the maintenance margin rate applicable to the lower tier. If the liquidation conditions are still met, the system will continue lowering the tier until the position reaches the lowest tier.

(4) Full Liquidation

If the position is in the lowest tier but the margin ratio remains greater than or equal to 100%, the liquidation engine will take over the remaining position at the bankruptcy price.

The position takeover process does not go through the matching system. Therefore, the bankruptcy price will not appear in the market’s trade history or candlestick chart.

(5) Processing After the Liquidation Engine Takes Over a Position

After the liquidation engine takes over a user’s position at the bankruptcy price, if the position can be executed in the market at a price better than the bankruptcy price, the remaining margin will be added to the insurance fund.

If the position cannot be executed at a price better than the bankruptcy price, the resulting deficit will be covered by the insurance fund. If the insurance fund is insufficient to cover the deficit, the liquidated position will be taken over by the Auto-Deleveraging system.

2. Position Tiers

1. What Is a Position Tier?

During periods of significant market volatility, the liquidation of a single large position with high leverage may create substantial deficit risk. If the insurance fund is depleted, the Auto-Deleveraging system may be triggered, creating additional risks for other traders.

Therefore, KCEX uses a position tier mechanism and applies a tiered margin system for risk control. The higher the leverage, the lower the maximum allowable position size. The larger the position, the higher the maintenance margin rate.

2. Maintenance Margin Rate

A user’s maintenance margin rate is calculated based on the position size rather than the leverage selected by the user. This means that the maintenance margin rate is not affected by the leverage multiple.

The system establishes multiple position tiers based on the risk level of each futures pair. Different maintenance margin rates apply to different tiers. The larger the position size, the higher the maintenance margin rate. For details of the position tiers applicable to each futures pair, go to Futures Information > Position Tiers.

The maintenance margin directly affects the position’s liquidation price. Therefore, we strongly recommend that users close their positions or add margin before their margin balance falls to the maintenance margin level to avoid liquidation.

Please note that under abnormal price fluctuations or extreme market conditions, the system may take additional measures to maintain market stability, including but not limited to:

• Adjusting the maximum leverage allowed for a futures pair
• Adjusting the position limits for different tiers
• Adjusting the maintenance margin rates for different tiers

3. Position Tier Example

Using BTC/USDT perpetual futures as an example:

Assume that the position tier list for BTC/USDT perpetual futures is as shown above. The figures are provided for illustrative purposes only. For the exact figures, please refer to the Position Tiers for each futures pair.

(1) Leverage Determines the Maximum Position Size

When the user adjusts the leverage to 100×, it corresponds to Tier 1 in the position tier list (62 < Leverage ≤ 125). Therefore, the maximum position the user can hold is 30 BTC.

When the user adjusts the leverage to 50×, it corresponds to Tier 2 in the position tier list (41 < Leverage ≤ 62). Therefore, the maximum position the user can hold is 36 BTC.

(2) The Maintenance Margin Rate Is Determined by the Current Position Size

A user buys 16 BTC in BTC/USDT perpetual futures at a price of 50,000 USDT with 50× leverage. The user’s position size is 16 BTC, corresponding to Tier 1 in the position tier list (position range: 0–30 BTC). Therefore, the maintenance margin rate applicable to the position is the Tier 1 rate of 0.4%.

Subsequently, the price of BTC/USDT perpetual futures rises, and the user adds another 15 BTC to the position. The position size is now 31 BTC, corresponding to Tier 2 in the position tier list (position range: 30–36 BTC). Therefore, the maintenance margin rate increases to 0.8%.

If the user’s position reaches the liquidation threshold at this point, liquidation will be triggered. As the position is currently in a higher tier, tiered liquidation will be applied. The system will first liquidate 1 BTC from the position—the portion within Tier 2. After the liquidation, the position size will decrease to 30 BTC. The position tier will therefore be lowered from Tier 2 to Tier 1, and the maintenance margin rate will decrease from 0.8% to 0.4%.

The system will then continue assessing the remaining position. If it still meets the liquidation conditions, the entire remaining position will be liquidated. Otherwise, the remaining position will be retained.

3. Other Relevant Information

1. Understanding the Estimated Liquidation Price

When the mark price reaches the estimated liquidation price, the position will be liquidated. In cross-margin mode, if multiple positions are held, the estimated liquidation price is for reference only and will continue to change as market conditions fluctuate.

In isolated-margin mode, positions in different cryptocurrencies are independent of one another. Therefore, the liquidation of a position in one cryptocurrency will not affect positions in other cryptocurrencies. Please note that the estimated liquidation price is for reference only. Actual liquidation is determined by the margin ratio.

The estimated liquidation price formulas for isolated-margin positions are as follows:

Short Position:

Estimated Liquidation Price = (Isolated-Margin Balance + Position Size × Average Entry Price) ÷ [Position Size × (Maintenance Margin Rate + Taker Fee Rate + 1)]

Long Position:

Estimated Liquidation Price = (Isolated-Margin Balance − Position Size × Average Entry Price) ÷ [Position Size × (Maintenance Margin Rate + Taker Fee Rate − 1)]

2. Role of the Insurance Fund

The Insurance Fund is used to cover deficit losses resulting from liquidation orders that cannot be executed. When the system performs liquidation, it takes over your position and closes it in the market. Any profit generated from closing the position will be transferred to the Insurance Fund corresponding to the relevant futures pair.

When a trading pair has just been listed or under special circumstances, KCEX will contribute additional funds to the Insurance Fund account to cover positions with deficit losses, ensuring that users’ trading activities are not affected.

3. Flexible Use of the Risk Reserve Fund If you incur a deficit loss—meaning that the account balance is insufficient after liquidation or the position cannot be liquidated—KCEX will take over your remaining position. In this situation, the Insurance Fund and Auto-Deleveraging mechanism will be used to cover the deficit loss.

KCEX remains committed to providing users with secure and efficient futures trading services. Thank you for your support!