What are HTX's contract liquidation rules?

Introduction to HTX's Contract Liquidations

HTX, formerly known as Huobi, is a prominent cryptocurrency exchange known for its diverse range of trading products, including futures and options contracts. One of the critical aspects of trading on HTX is understanding the rules surrounding contract liquidations. Liquidation occurs when a trader's position is forcibly closed due to insufficient margin to cover potential losses. This article delves into the specifics of HTX's contract liquidation rules, providing a comprehensive guide for traders.

Understanding Margin and Leverage

Before diving into the liquidation rules, it's essential to understand the concepts of margin and leverage. Margin is the amount of collateral required to open and maintain a position, while leverage allows traders to control a larger position with a smaller amount of capital. On HTX, traders can use leverage up to 125x, which significantly amplifies both potential profits and losses.

Types of Liquidations on HTX

HTX employs two types of liquidations: partial liquidation and full liquidation. Partial liquidation occurs when a trader's position is partially closed to bring the margin level back to the maintenance margin requirement. Full liquidation, on the other hand, results in the complete closure of the position when the margin level falls below the liquidation margin.

Maintenance Margin and Liquidation Margin

The maintenance margin is the minimum amount of margin required to keep a position open. If the margin level falls below this threshold, the position is at risk of liquidation. The liquidation margin is the point at which the position is automatically liquidated. On HTX, the maintenance margin is typically set at 0.5% of the position value, while the liquidation margin is set at 0.3%.

How Liquidation Works on HTX

When a trader's margin level approaches the maintenance margin, HTX's system will issue a margin call, prompting the trader to add more funds to their account. If the trader fails to meet the margin call, the position will be partially liquidated to restore the margin level to the maintenance margin. If the margin level continues to decline and reaches the liquidation margin, the position will be fully liquidated.

Liquidation Price Calculation

The liquidation price is the price at which a position will be liquidated. HTX calculates the liquidation price based on the entry price, the amount of leverage used, and the maintenance margin requirement. The formula for calculating the liquidation price for a long position is:

[ \text{Liquidation Price} = \frac{\text{Entry Price}}{(1 + \text{Maintenance Margin})} ]

For a short position, the formula is:

[ \text{Liquidation Price} = \frac{\text{Entry Price}}{(1 - \text{Maintenance Margin})} ]

Risk Management Strategies

To avoid liquidation, traders can employ several risk management strategies. One effective method is to use stop-loss orders, which automatically close a position when the price reaches a predetermined level. Another strategy is to monitor margin levels closely and add more funds to the account when necessary. Additionally, traders can reduce leverage to lower the risk of liquidation.

Impact of Market Volatility

Market volatility can significantly impact the likelihood of liquidation. During periods of high volatility, prices can fluctuate rapidly, increasing the risk of margin levels falling below the maintenance margin. Traders should be aware of market conditions and adjust their positions accordingly to mitigate the risk of liquidation.

Liquidation Fees and Costs

When a position is liquidated, HTX may charge a liquidation fee to cover the costs associated with closing the position. The fee is typically a small percentage of the position value and is deducted from the remaining margin. Traders should be aware of these fees and factor them into their trading strategies.

Examples of Liquidation Scenarios

To illustrate how liquidation works on HTX, consider the following examples:

• Example 1: Long Position Liquidation
  • A trader opens a long position on BTC/USDT with an entry price of $30,000 and 10x leverage.
  • The maintenance margin is 0.5%, and the liquidation margin is 0.3%.
  • The liquidation price is calculated as: ( \frac{30,000}{(1 + 0.005)} = 29,850.75 ).
  • If the price of BTC/USDT falls to $29,850.75, the position will be liquidated.
• Example 2: Short Position Liquidation
  • A trader opens a short position on ETH/USDT with an entry price of $2,000 and 20x leverage.
  • The maintenance margin is 0.5%, and the liquidation margin is 0.3%.
  • The liquidation price is calculated as: ( \frac{2,000}{(1 - 0.005)} = 2,010.05 ).
  • If the price of ETH/USDT rises to $2,010.05, the position will be liquidated.

Frequently Asked Questions

Q: Can I avoid liquidation by adding more funds to my account during a margin call?

A: Yes, if you receive a margin call, you can add more funds to your account to bring the margin level back above the maintenance margin and avoid liquidation.

Q: What happens to my remaining margin after a full liquidation?

A: After a full liquidation, any remaining margin in your account will be returned to you, minus any applicable liquidation fees.

Q: How can I check my current margin level on HTX?

A: You can check your current margin level by navigating to the 'Positions' section of your HTX account, where you will find detailed information about your open positions and margin levels.

Q: Is there a way to set a custom liquidation price on HTX?

A: No, HTX does not allow traders to set a custom liquidation price. The liquidation price is automatically calculated based on the entry price, leverage, and maintenance margin.