3.Liquidation

1. Index price, mark price and latest price

First, we need to introduce index price, mark price and latest price, because when trading cryptocurrency derivatives, index price, mark price and latest price are very important and basic concepts.

The main reason why we need three prices is that in the process of derivatives trading, such as perpetual contract trading, users do not necessarily own a certain asset, but trade contracts denominated in a certain asset, which leads to the need to use spot price data for contract trading, thus laying the foundation for long and short positions.

Description of Index price, Mark price and Latest price

Index price

Coinstore contract index is an index of comprehensive spot prices. It is calculated by weighted average of the latest spot transaction prices of multiple exchanges in the market (Huobi, Binance, OKX, Poloniex, etc.). Each contract has an index.

In order to represent the market consensus price of the underlying asset, we sample data from the index component exchanges and obtain the latest prices of multiple exchanges through the API. Then we perform a weighted average calculation to obtain the index price. The index price is released every 3 seconds.

Mark price

The mark price is used as a reference for triggering forced liquidation, and is also used to calculate leverage and unrealized profit and loss. Its purpose is to be able to carry out forced liquidation fairly and prevent market manipulation

Latest price

The latest price is the price of the most recent transaction of the derivative contract and is updated in real time. The mark price is only used to calculate unrealized profit and loss, while the latest price is used to determine the realized profit and loss.

2. Forced liquidation instructions

To avoid peaks and unnecessary forced liquidations during high volatility, the Coinstore contract uses the latest price and mark price to calculate forced liquidations.

The following situations will trigger forced liquidations:

Position equity = position margin + unrealized profit and loss < maintenance margin

How to check Price

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APP：

Liquidation Price

When the mark price reaches the liquidation price of the position, liquidation will occur. Traders should pay close attention to the changes in the mark price and liquidation price to avoid liquidation.

Check Liquidation Price

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Liquidation Price calculation

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【Trade】-【Contract】-【Calculator】

【Buy/Long; Sell/Short】 - 【Order Price】 - 【Position Size】 - 【Leverage Multiple】

APP：

【Contract】-【More】-【Calculator】

【Futures】-【Isolated/Cross】-【Long/Short】-【Leverage】-【Entry Price】-【Size】

3. Liquidation process

When liquidation is executed, all current orders in the user's contract account will be canceled immediately. At the same time, a "Liquidation Fee" will be charged and added to the insurance fund. Therefore, we strongly recommend that users close their positions before the margin drops to the maintenance margin level to avoid liquidation and incurring additional fees.

Generally, when liquidation event occurs for users with smaller positions, all positions will be forced to be liquidated. Users with larger positions will have a smaller proportion of all liquidations, because the maintenance margin is based on the size of the user's position, not their leverage. Therefore, the effective maintenance margin of users with smaller positions is lower than the forced liquidation rate. Therefore, regardless of the final price at the time of liquidation, the user will be bankrupt once the liquidation occurs.

4. Liquidation order

Please note that liquidation orders are trade or cancel orders. Orders will be traded as much as possible, and untraded orders will be automatically canceled. The system will cancel all current orders and then try to reduce the user's margin usage through a large immediate trade or cancel order without completely forcing the user to liquidate. If the user meets the maintenance margin requirement after accounting for realized losses and deducting liquidation fees, the liquidation ends. If the user is still in a state of insufficient margin, the insurance fund will take custody of the user's position, close the position at the bankruptcy price in the market, and declare the user bankrupt. 70% of the remaining assets (if any) will be allocated to the insurance fund, and 30% will be returned. If the user goes bankrupt (negative wallet balance), the insurance fund will pay the fees.

4.Insurance Fund

The purpose of the insurance fund is to compensate for the losses caused by the assets falling below 0 when the user's account is liquidated. 70% of the remaining assets of the non-bankrupt forced liquidation users will be injected into the insurance fund. The main purpose of the insurance fund is to reduce the occurrence of counterparty liquidation.

1. If the user is liquidated, that is, after the user is forced to close the position, there is no remaining funds in the account or it cannot be forced to close, Coinstore will take over the user's remaining position

2. In this case, Coinstore will use the insurance fund for reverse liquidation. When the insurance fund is not enough to take over the remaining positions of the forced liquidated user, it will trigger automatic position reduction.

Insurance Fund Rules:

The insurance fund conducts a maximum net nominal position check, and its nominal value cannot exceed its preset maximum position. Generally speaking, it defaults to 100% of the insurance fund. Any position exceeding the maximum nominal value will be converted to automatic position reduction. The insurance fund reduces positions according to the preset algorithm. At this time, all situations that usually require the intervention of the insurance fund will be converted to ADL.

The default leverage of the insurance fund is 1x.

How to check Insurance Fund

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