What is the meaning and purpose of the early liquidation mechanism?
Early liquidation is a specific case of forced liquidation. It is designed to prevent negative impacts caused by extreme market volatility, such as cascading liquidations and position bankruptcy (liquidated positions cannot be filled in the market).
To better understand early liquidation, it is important to first become familiar with the Auto-Deleveraging (ADL) mechanism and forced liquidation rules.
1. Auto-Deleveraging Mechanism
Auto-Deleveraging (ADL) refers to a counterparty forced liquidation mechanism implemented to control overall platform risk when extreme market conditions or unpredictable factors cause the insurance funds to become insufficient or drop rapidly. Currently, a rapid drop is defined as a straight-line decrease of 30% from the peak value of the risk reserve within 8 hours. The platform may adjust this threshold in the future based on market conditions.
Once ADL is triggered, OKX will no longer place liquidation orders on the market and waiting for a suitable price to be filled. Instead, it will directly match liquidated positions with high-priority counterparty accounts in the ADL ranking at the current Mark Price. After the transaction is completed, the relevant futures position in the counterparty's account will be reduced, and position realized PnL will be converted into the account balance. Once deficit losses are handled through ADL, the platform will no longer conduct loss socialization.
When user's position is automatically deleveraged, you will receive SMS and Email notifications informing you of the position that was reduced and the reduction price. You may view the ADL record in the Position History, where the record type will be shown as Auto-Deleveraging.
For more details, please refer to: Auto-Deleveraging: what it is and how it affects your positions
2. Forced Liquidation
Under the cross margin mode, when the latest filled price moves in the opposite side of the user's position, and the maintenance margin requirement is less than or equal to the position tiers maintenance margin requirement + close position fee rate, the system will trigger deleveraging or liquidation.
Under the isolated position margin mode, when the latest filled price moves in the opposite side of the user's position, and the maintenance margin requirement of the user's position is less than or equal to the position tiers maintenance margin requirement + close position fee rate, the system will trigger deleveraging or liquidation.
Forced Liquidation Conditions: When a user's position tier is at level 3 or above, if the position's maintenance margin requirement falls below the required maintenance margin requirement for the current position tier + close position fee rate, but is still higher than the maintenance margin requirement + close position fee rate for the lowest position tier, the user's entire position will not be close position directly. The system will calculate the number of futures that need to be reduced to lower the position by two tiers and perform a partial reduction. After successfully reducing the position tier, if the maintenance margin requirement meets the required maintenance margin requirement for the new tier, the partial deleveraging will stop; if it still does not meet the maintenance margin requirement for the new tier, the partial deleveraging process will continue in a loop.
When a user's position tier is at level 2 or below, and the maintenance margin requirement falls below the required maintenance margin requirement for that position tiers + the close position fee rate; or when a user's position tier are at level 3 or above, but the maintenance margin requirement falls below the required maintenance margin requirement of position tiers at level 1 the close position fee rate, the system will directly order all futures (cross margin mode) or all positions (isolated margin mode) at the bankruptcy price (which the maintenance margin requirement is zero) to the liquidation engine.
After forced liquidation is triggered, the liquidation engine takes over the liquidated position. At this point, the user's liquidation loss is equal to the loss incurred when the position's maintenance margin requirement drops to zero, and the maximum loss will not exceed the total margin amount of the liquidated position.
3. Insurance Fund
The Insurance Fund is a fund used by the OKX platform to cover against the risk of forced liquidation order overloss. Its main sources include fund provided by the OKX and the remaining funds from forced liquidated orders.强平订单的强平剩余
Insurance Funds for each business line of OKX—margin trading杠杆交易, expiry trading, perpetual futures, and options trading—are independent of each other. Within each business line, the insurance funds for different underlying futures and different cryptocurrencies are also independent of each other.
Every day at 16:00:00 (HKT), OKX will transfer the losses or profits caused by all auto-deleveraging and forced liquidation orders in the marketplace from 16:00:00 (HKT) the previous day until now, out of or into the insurance funds account. These are recorded as overloss losses 穿仓损失 or forced liquidation injections 强平注入.
View Insurance Fund
Open the OKX official website, select Trade > Futures to enter the trading page. On the right side, select Information > Security Fund, then select on specific options to view the status of different types of insurance funds.