Will the BingX perpetual contract liquidate?

Insufficient margin or extreme price volatility can trigger liquidation on BingX perpetual contracts, resulting in the loss of the trader's entire margin balance.

Nov 30, 2024 at 03:16 am

Will the BingX Perpetual Contract Liquidate?

Introduction

Perpetual contracts are a type of futures contract that does not have a set expiration date. This means that traders can hold positions for as long as they want, without having to worry about the contract expiring. However, perpetual contracts are also subject to liquidation, which is the process of forcibly closing a position when the trader's margin account balance falls below a certain level.

Factors that can trigger liquidation

There are several factors that can trigger liquidation for a perpetual contract on BingX:

• Price volatility: The most common cause of liquidation is price volatility. If the price of the underlying asset moves against the trader's position, the trader's margin account balance will decrease. If the balance falls below a certain level (known as the maintenance margin), the contract will be liquidated.
• Insufficient margin: Another cause of liquidation is insufficient margin. Margin is the amount of money that the trader has deposited into their account to cover potential losses. If the trader's margin balance is too low, the contract may be liquidated even if the price of the underlying asset does not move significantly against the trader's position.
• Funding rate fluctuations: Perpetual contracts are traded on a margin basis, which means that traders do not have to pay the full value of the contract upfront. Instead, they pay a funding rate, which is a small fee that is paid every 8 hours. If the funding rate is positive, traders who are long the contract will pay a fee to traders who are short the contract. If the funding rate is negative, the opposite will occur. Fluctuations in the funding rate can also trigger liquidation if the trader's margin balance is not sufficient to cover the fees.

How to avoid liquidation

There are several things that traders can do to avoid liquidation:

• Manage risk carefully: One of the most important things that traders can do is to manage their risk carefully. This means trading with a position size that is appropriate for their account size and risk tolerance.
• Maintain adequate margin: Traders should also make sure that they have sufficient margin in their account to cover potential losses. The amount of margin that is required will vary depending on the volatility of the underlying asset and the size of the position.
• Use stop-loss orders: Stop-loss orders can be used to automatically close a position if the price of the underlying asset moves against the trader's position. This can help to prevent losses from spiraling out of control.
• Monitor the funding rate: Traders who are trading perpetual contracts should also monitor the funding rate. If the funding rate is moving against them, they may need to adjust their position or add additional margin to their account.

What happens if my contract is liquidated?

If a trader's perpetual contract is liquidated, they will lose their entire margin balance. This can be a significant loss, especially if the trader had a large position.