Key Concepts of Coin-Margined Futures Trading
What Is Forced Liquidation?
Forced liquidation occurs when your Margin Ratio drops to ≤0%, triggering an automatic closure of your position by the system.
Margin Ratio Formula: (Account Equity / Used Margin) × 100% – Adjustment Factor
Where:
- Used Margin = Position Margin + Frozen Margin
Huobi Futures implements a tiered liquidation mechanism to prevent full-position liquidation by attempting to lower the adjustment factor tier.
Liquidation Scenarios:
Adjustment Factor at Tier 1:
- All pending orders canceled.
- Opposite positions auto-traded (long/short offset).
- Full liquidation if Margin Ratio remains <0%.
Adjustment Factor > Tier 1:
- Cancel orders + auto-trade offsets.
- Partial liquidation reduces positions to a lower-tier net holding limit.
- Full liquidation if Margin Ratio stays <0% after tier reduction.
Note: Trading is disabled for the affected contract during liquidation.
Adjustment Factor Explained
A risk-control metric to prevent over-leverage, calculated across five tiers based on net holdings. Higher tiers indicate greater risk.
Example (BTC Contracts):
- Net Position: 1,000 contracts → Tier 2
- Adjustment Factors: 10% (10x), 20% (20x), 5% (5x)
Contract Specs:
- BTC: 1 contract = $100 face value
- Other coins: 1 contract = $10 face value
👉 View adjustment factors for all contracts
Key Price Indicators
Estimated Liquidation Price
The theoretical market price when Margin Ratio = 0%. Actual liquidation uses the latest traded price triggering Margin Ratio ≤0%.
Mark Price
A secondary reference price to reduce unnecessary liquidations. Liquidation requires both latest price and mark price to indicate Margin Ratio ≤0%.
Mark Price Calculation:
- Fair Basis Price:
Index Price + MA(Bid/Ask Midpoint Basis) - Depth-Weighted Fair Price:
Index Price + EMA(Depth-Weighted Mid Basis) - EMA Last Price: Smoothed moving average of recent trades.
Final Mark Price = Median(Fair Basis, Depth-Weighted, EMA Last)
Boundary Adjustment:
Mark Price is clamped within ± deviation thresholds from the latest price.
Takeover Price
The price at which equity hits zero during liquidation. Unlike actual liquidation price, takeover prices aren’t displayed on candlesticks.
Example Scenario:
- Position: Long 15,000 BTC contracts @ $8,000 (10x leverage).
- Liquidation Trigger: BTC drops to $7,330.12 (Margin Ratio = 0%).
- Takeover Calculation: 5,001 contracts liquidated at $7,228.91 (equity-zero price).
- Result: 9,999 contracts remain; trading resumes.
Risk Management Tools
Risk Reserve Fund
Covers losses from unfilled liquidation orders. Profits from liquidations are injected into the fund.
Loss Allocation
If losses exceed the Risk Reserve:
- Shared Proportionally across profitable accounts of the same contract type (weekly/quarterly).
- Allocation Formula:
Loss Amount / Total Profits of All Eligible Accounts.
Example: A 2 BTC profit account would bear 0.0001 BTC for a 1:20,000 allocation ratio.
FAQs
Q1: Why does Huobi use tiered liquidation?
A1: To mitigate market impact by partially reducing positions instead of full liquidation, protecting users from extreme volatility.
Q2: How is mark price different from last price?
A2: Mark price smooths outliers using multiple data points, reducing false liquidations during price spikes.
Q3: What happens if my position enters takeover?
A3: The system closes it at the equity-zero price (non-traded), preserving market stability.
Q4: How often are adjustment factors updated?
A4: Periodically based on market conditions; changes are announced via official channels.
Q5: Can I avoid liquidation entirely?
A5: Yes—monitor your Margin Ratio and add funds or reduce exposure before it nears 0%.
👉 Learn advanced strategies to manage liquidation risks
Disclaimer: Policies may update without notice. Refer to Huobi’s latest announcements for real-time adjustments.