If your margin cannot fulfill your maintenance requirement, your position will be liquidated.
For users on the lowest risk limit tiers:
- FMex cancels any open orders in the contract.
- If this does not satisfy the maintenance margin requirement then the position will be liquidated by the liquidation engine at the bankruptcy price.
For users on the higher risk limit tiers:
The liquidation system attempts to bring a user down to a lower Risk Limit, and thus lower margin requirements by:
- Attempting to bring a user down to a Risk Limit associated with their open orders and current position;
- Cancelling any open orders and then attempting to bring a user down to a Risk Limit associated with their current position.
- Submitting a FillOrKill order of the difference between the current Risk Limit position size and the position size to satisfy the margin requirement to avoid liquidation.
- If the position is still in liquidation then the entire position is taken over by the liquidation engine and a limit order to close the position is placed at the bankruptcy price.
Gains and Losses during liquidation process
If FMex is able to liquidate the position at better than the bankruptcy price, the additional funds will be added to the Insurance Fund.
If FMex is unable to liquidate the position at the bankruptcy price, FMex will spend the Insurance Funds on aggressing the position in the market in an attempt to close it. If this still does not close the liquidated order, this will then lead to an Auto-Deleveraging event.
Example of Forced Liquidation
When a user buys a contract at $100, the Forced Liquidation price is $99.5 and the bankruptcy price is $99.
If the Forced Liquidation occurs, the position will be taken over by the Forced Liquidation engine at the price of $99 and closed the position in the market.
If the Forced Liquidation commission is traded at $99.25, the insurance fund will become $0.25.
Another user bought a contract at $100. The Forced Liquidation price was $99.5 and the bankruptcy price was $99.
In a Forced Liquidation event, the engine executes a Forced Liquidation delegate at a minimum price of not less than $98.75.
The calculation method is the bankruptcy price $99 minus $0.25 - the insurance fund.
Forced Liquidation engine will use the balance of the insurance fund to submit the price of a more aggressive strong flat commission.
If this Forced Liquidation filled at 98.75 dollars, then the insurance fund will become 0 dollars, and avoided the Auto Deleveraging.