Liquidation Protocols of Binance Futures Trading

 What is the difference between the Mark Price and the Last Price?

To avoid spikes and unnecessary liquidations during periods of high volatility, Binance Futures uses the Last Price and Mark Price.
The last Price refers to the latest transaction price at which the contract was traded. In other words, the last trade in trading history defines the Last Price. It’s used for calculating your realized PnL (Profit and Loss).
On the other hand, Mark Price is calculated using a combination of funding data and a basket of price data from multiple spot exchanges. Your liquidation prices and unrealized PnL are calculated based on the Mark Price.
You can switch between the two prices on both the app and the website.
If you’re using the app:
Go to [Futures]. Make sure you’re using the [Classic] trade mode. You can switch trade modes from [...].
Tap the chart icon. Then, tap [Last Price] to switch.
If you’re using the website:
Click [Last Price] on the trading chart to switch.
Risk and leverage are adjusted based on the user’s absolute exposure; the larger the position, the higher the required margin, and the lower the leverage. A liquidation is triggered when:
Collateral = Initial Collateral + Realized PnL + Unrealized PnL < Maintenance Margin
It is important to note that the maintenance margin change will directly affect the liquidation price (Margin Ratio = Maintenance Margin / Margin Balance). To avoid being liquidated (i.e., margin ratio hits 100%), please add more margin or reduce your positions. It is recommended to keep a margin ratio below 80%.

How to calculate the liquidation price?

Liquidation occurs when the Mark Price hits the liquidation price of a position. You are advised to pay close attention to the movements of the Mark Price and the liquidation price to avoid being liquidated.
In the Hedge Mode, both long and short positions of the same symbol share the same liquidation price in the Cross Margin Mode.
If both long and short positions of the same symbol are in the Isolated Mode, the positions will have two different liquidation prices depending on the margin allocated to the positions.
Binance allows highly leveraged trading by using a sophisticated risk engine and a liquidation model that might be intricate.
Please note that liquidation will always be triggered when a position’s Mark Price reaches its liquidation price. However, there may be a discrepancy between the order’s liquidation price displayed on the Liquidation History tab and the actual price at which the position was liquidated. This discrepancy often happens in a volatile market (the Mark Price is not linear).
For example, you open a short position of BTCUSDT with a Mark Price of 17,000 USDT and the system calculates the position’s liquidation price to be 17,006 USDT. When the market is extremely volatile, the Mark Price could quickly jump from 17,000 USDT to 17,100 USDT within a second, causing the position to be liquidated at a Mark Price of 17,100 USDT instead of the liquidation price initially calculated (17,006 USDT). You will also see that the liquidation price is 17,100 USDT in the Liquidation History tab.

What happens during liquidation?

During the liquidation process, all open orders are immediately canceled. All users will be subjected to the same liquidation protocols referred to as “Smart Liquidation.” Binance avoids full liquidation of a user’s position whenever possible.
For any traders that are cleared via forced liquidation and not by an order issued by the user, a liquidation clearance fee will be charged on the amount liquidated only (not the notional value of the position).
Please note that under normal circumstances, users with smaller position size are highly likely to be fully liquidated when liquidation occurs while users with larger position size are less likely to be fully liquidated. The reason is that the Maintenance Margin is based on a user’s position size and not their leverage selection. As a result, the effective Maintenance Margin is lower than the liquidation clearance fee rate for users with a smaller position size, making them bankrupt when they enter liquidation regardless of the final clearing price.

Liquidation orders

Please note that all liquidation orders are Immediate or Cancel orders. The order will fill as much as possible and cancel the rest. This is different from a Fill-or-Kill order (FOK), which will only execute if the order can be completely executed, or otherwise canceled. The remaining positions will either be assigned to the Insurance Fund or used for counterparty liquidation.
The system will first cancel all open orders, then attempt to reduce the user’s margin limit with one large Immediate or Cancel order (IOC) without fully liquidating the user. If the user is margin-compliant after calculating the realized losses and liquidation clearance fee deductions, the liquidation will stop.
If the user is still margin deficient, the user’s position will be closed at the bankruptcy price and the Insurance Fund will take over the position as the user is declared bankrupt. A portion of the remaining collateral (if any) will go to the Insurance Fund. If an account becomes bankrupt (negative wallet balance), the Insurance Fund will balance the account back to 0.

Automated Negative Balance Clearance

When a user’s account balance falls into negative equity, Binance will use the Insurance Fund to cover the deficit losses in the user’s account. The automated negative balance clearance will be performed every ten minutes.
Please note the negative account balances will be automatically cleared for users who meet all the requirements below:
  • Multi-Assets Mode is not activated.
  • For negative balances in USDⓈ-Margined accounts, there are no open positions (cross or isolated) in the account.
  • For negative balances in Coin-Margined accounts, there are no open positions (cross or isolated) in the account.
  • The user did not transfer any funds to deficit losses in the account after liquidation.

Liquidation Clearance Fee

When a user's position is liquidated, a certain percentage of the Liquidation Clearance Fee will be collected and contributed to Insurance Fund reserves, marked as ''Liquidation Clearance'' in the transaction history.
It is recommended that users strictly control their position risks to avoid liquidation.
Liquidation Clearance Fee = Liquidation Clearance Fee Rate * Position Notional Value

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