Liquidation, also called margin call, is the closing of a trader’s position due to the loss of all, or nearly all, of said trader’s Initial Margin. On Phemex your position is automatically closed if the market price reaches your liquidation price (for long positions, your liquidation price is lower than your entry price and for short positions, your liquidation price is higher than your entry price).
Contracts on Phemex can be highly leveraged. To keep these positions open, you will be required to hold a percentage of the value of the position on the exchange, known as the Maintenance Margin percentage. If you cannot fulfill your maintenance requirement, you will be liquidated and your maintenance margin will be lost. Phemex uses Fair Price Marking for the purpose of avoiding liquidation due to illiquid markets or manipulation.
Risk Limits are also imposed that require higher margin levels for larger position sizes. This gives our liquidation system more usable margin to effectively close large positions that would otherwise be difficult to safely close. If it is safe to do, larger positions are incrementally liquidated. If liquidation is triggered, our system will cancel any open orders on the current contract in an attempt to free up the margin and maintain the position. Orders on other contracts will still remain open. Additionally, Phemex employs a partial liquidation process involving the automatic reduction of maintenance margin in an attempt to avoid a full liquidation of a trader’s position. Phemex offers a multitude of instruments to minimize risk:
Stop Limit Orders
Allow you to set the price for the order to stop before liquidation.
Stop Market Orders
Stop orders that remain unseen in the order book until the order is triggered.
Take Profit Orders
Similar to a stop market order, this order is used to set a target price on a position. This order is used in the case to gain more profit, rather than cutting losses.
Take Profit Market Orders
Same as Take Profit Limit Order but the order will be triggered at the market price, not a target price
FAQ1: How is the liquidation price decided?
Your liquidation price is proportional to your level of leverage. If you trade with high leverage, your liquidation price will be closer to your entry price. Inversely, if you trade with lower leverage, you reduce the risk of getting your position closed and liquidated.
FAQ2: What is the purpose of the insurance fund?
In the event, your position keeps worsening, without an insurance fund you may end up owing more than your initial position. The insurance fund prevents this from happening.
FAQ3: How can I manage risk and avoid liquidation?
We suggest two ways, low stop loss in your Stop Limit Orders and low leverage trading (between 3x and 5x for instance).