Core Mechanism: Liquidation Price and Trigger Conditions
On the OKX exchange, forced liquidation is triggered by a core metric: the maintenance margin ratio. This ratio measures the minimum margin level required for a user’s account to maintain existing positions under current market conditions.
When the following conditions are met, the system will initiate the forced liquidation process:
- The user’s maintenance margin ratio is ≤ 100%.
It is important to note that the forced liquidation price is calculated based on the marked price. The marked price is a reference price calculated by OKX using a weighted average of transaction prices from multiple major spot exchanges. It is designed to more accurately reflect the value of an asset and prevent unnecessary forced liquidations caused by extreme, momentary price spikes (commonly known as “spikes”) in a single market.This means that even if the latest trade price hits the liquidation threshold, the position will not be immediately liquidated as long as the marked price has not reached the threshold.
The Phased Process of Forced Liquidation
On OKX, forced liquidation is not a single, instantaneous action, but rather a risk control process that may involve multiple steps, designed to provide users and the market with a certain degree of buffer.
- Cancellation of Pending Orders: When an account’s risk level rises but has not yet reached the pre-reduction threshold, the system will first cancel all unfilled orders on that contract to free up a portion of the margin and reduce risk.
- Tiered Position Reduction (Partial Liquidation): If the risk remains too high, the system will perform a partial forced liquidation of the position based on the position’s risk tier. After each partial liquidation, the system will recalculate the maintenance margin ratio. If the new ratio meets the requirements, the reduction process will stop; if not, liquidation will continue.
- Full Liquidation: If, after the partial liquidation described above, the account still fails to meet the maintenance margin requirement, the system will continue with forced liquidation until the position is fully liquidated.
Related Fees and Risk Control
Fees are incurred during the forced liquidation process. The forced liquidation fee is calculated based on the user’s current fee tier and the value of the position. Additionally, related fees may also be incurred during the partial liquidation phase.
To address the risk of margin call (i.e., remaining insolvent after liquidation) during extreme market conditions, OKX has implemented an Automatic Position Reduction (ADL) mechanism. When the insurance fund is insufficient to cover margin call losses, users with substantial profits and opposing positions may have their positions automatically reduced by the system to absorb a portion of the losses, thereby ensuring the stability of the entire system.
Risk Management Recommendations for Traders
- Use Calculation Tools: Before opening a position, we strongly recommend using OKX’s built-in risk calculator or a reliable third-party calculation tool to estimate the liquidation price based on your planned leverage multiple.
- Understand Margin Rates: Closely monitor changes in your account’s maintenance margin rate, which is influenced by various factors such as position size, leverage, and market volatility. The larger the position or the more volatile the market, the higher the maintenance margin requirements may be.
- Proactively Manage Risk: Avoid pushing your position to the brink of forced liquidation. When market conditions turn unfavorable, consider proactively adding margin, reducing your leverage ratio, or closing the position early to avoid losses and additional fees resulting from forced liquidation.
