When forced-deleveraging happened, the investor's rest position will be dominated by the risk management system which belongs to the platform. The forced-deleveraging system will be active if the deleveraging position could not be matched and the marking price reaches the ruinous price, which means individuals' position will be forced to deleverage, and people who have the reserve direction potion will be auto-decreased. The factors to determine the auto-decreasing order are the profit ratio and position leverage. The closing price would be the ruinous price when forced-deleveraging happened.
The process of forced-deleveraging
- The forced deleveraging position cannot match the market price and the mark price reach the ruinous price as well. Therefore, the forced deleveraging system(FDL) will be invoked.
- The FDL system will close the position according to the ruinous price and the required deleverage positions.
- During the forced deleveraging process, all the unsettled orders will be canceled, all the operations related to any contract will be abandoned, open & close position function, transferring the rest of the position margin, and adjusting position leverage will be abandoned.
- After a period of time(settled by system default), the system will detect whether the forced deleveraging is effected or not.
- If it does, and the margin has matched the requirement of the risk management system, then the rest of force-deleveraging orders will be canceled and user status could back to the normal situation and all the operation will be allowed.
- If it doesn't, or the margin still not match the requirement of the risk management system, what will happen is, the user account will be continually controlled by the forced deleveraging system, and making deals according to the market price and current the orders in position.
Comparing with the traditional trading market, individuals would have more chances to suffer from liquidating or wearing in the cryptocurrency derivatives trading due to the high volume and leverage level. When the risk protecting fund cannot afford the loss of wearing, the system will manipulate the user who has high leverage and profits to process the auto-deleverage. Comparing with the social market sharing mechanism where the profit-sharing losses of the entire market are shared, the automatic position reduction mechanism uses a one-to-one matching mechanism, making the conversion more transparent. For users, it can be judged whether the risk of liquidation will occur according to the automatic order deleverage system.
Order System in Auto Deleverage
There is an indicator could be seen in the system, the priority will be shown by the lightened cells(10% for each) in the queue.
In the above case, if all the cells are lightened, which means, the user now in the high priority position. The auto deleverage may happen if the market cannot match the orders.
A notification will be sent if auto-deleverage happened, and unsettled orders will be canceled, then individuals could choose to re-open the position without the limitation.
The sort of deleveraging is counting by the profit and leverage, individuals with high profit and high leverage will be settled as high priority.
Here is the formula:
Sort = Percentage of profit * Effective leverage (if profitable) = Percentage of profit / Effective leverage (if loss) among them Effective leverage = abs (marked value) / (marked value - bankruptcy value) Profit percentage = (mark value - average opening value) / abs (average opening value) Marked value = marked price * number of positions * contract unit Bankruptcy value = bankruptcy price * number of positions * contract units Average opening value = opening price * number of positions * contract units
How to Decrease the Priority in the Sorting System
- Adjust the leverage level. If the high leverage level and high-profit orders are on hold, such kind of individuals would be a high priority in the queue, at that time, decrease the leverage level is an available solution. The result would be the occupied margin will be increased and the P&L ratio will decrease.
- Manual closing. Individuals could make some adjustments, for example, close on their some of the positions, confirm the profit, and decrease the P&L ratio.