When fluctuations in contract prices result in insufficient margin ratios, forced liquidation will be triggered. The margin ratio measures the risk of asset coverage for positions. When the margin ratio approaches the minimum maintenance margin ratio, the system will forcibly take over your position. LN Exchange uses the mark price to calculate the margin ratio to avoid forced liquidation due to insufficient liquidity or market manipulation.

To prevent market liquidity shocks during large position liquidations, LN Exchange employs a step reduction mechanism. Each step corresponds to a different maintenance margin ratio. When the system determines that the margin is insufficient for the current position's maintenance margin, it will perform a reduction operation, decreasing the position quantity to the next step's net position limit.

After reaching the liquidation condition, the system automatically takes the following measures to release the available margin to prevent forced liquidation:

  1. The system cancels all open orders for this contract.

  2. Long and short positions of the same contract are self-traded.

  3. If after these steps, the margin ratio of the user's position is still below the current required maintenance margin ratio, a forced reduction operation will be carried out.

  4. If the margin ratio is still less than zero after forcibly reducing to the adjustment coefficient, the entire position will be forcibly liquidated.

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