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Liquidation

Liquidation is a risk control mechanism that closes positions when a trader’s margin is no longer sufficient to cover potential losses. AZX implements a structured liquidation process to protect both individual traders and overall system stability.

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Forced Liquidation

Forced liquidation occurs when a position’s available margin falls to or below the required maintenance margin. At this point, the position can no longer safely absorb further losses.

When forced liquidation is triggered:

  • The position is closed by the system

  • The maintenance margin is forfeited

  • Open orders for the affected contract are canceled to release margin

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Use of Mark Price

AZX uses the mark price, rather than the last traded price, to determine liquidation conditions. This prevents liquidations caused by temporary price spikes, low-liquidity trades, or short-term manipulation.

Liquidation is triggered only when the mark price reaches the liquidation price.

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Partial Liquidation

Instead of liquidating the entire position at once, AZX employs a partial liquidation mechanism whenever possible.

Partial liquidation:

  • Gradually reduces position size

  • Lowers maintenance margin requirements

  • Helps avoid excessive market impact

  • Increases the probability of position survival

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Handling of Open Orders

When liquidation is triggered:

  • All unexecuted orders for the same contract are canceled

  • Margin reserved for those orders is released

  • Orders for other contracts remain unaffected

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Margin Modes

AZX supports both Isolated Margin and Cross Margin modes.

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Isolated Margin Mode

In isolated margin mode, each position has its own independent margin allocation. Losses are limited to the margin assigned to that position, and other account balances are not affected.

Liquidation Price Formula (Isolated)

Long Position

Liquidation Price = (Avg. Entry Price × Quantity × Contract Size + Maintenance Margin − Initial Margin) ÷ (Quantity × Contract Size)

(Rounded up)

Short Position

Liquidation Price = (Avg. Entry Price × Quantity × Contract Size − Maintenance Margin + Initial Margin) ÷ (Quantity × Contract Size)

(Rounded down)

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Example – Isolated Long Position

  • Entry Price: 80,000 USDT

  • Quantity: 1 BTC

  • Leverage: 50×

  • Maintenance Margin Rate: 0.5%

Initial Margin = 80,000 ÷ 50 = 1,600 USDT

Maintenance Margin = 80,000 × 0.5% = 400 USDT

Liquidation Price = (80,000 + 400 − 1,600) ÷ 1 = 78,800 USDT

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Cross Margin Mode

In cross margin mode, all available account balance is shared across positions. Initial margin is position-specific, while remaining balance supports all positions collectively.

Liquidation occurs only when:

  • Available margin reaches zero, and

  • Maintenance margin requirements can no longer be satisfied

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Example – Cross Margin Position

  • Entry Price: 100,000 USDT

  • Quantity: 2 BTC

  • Leverage: 100×

  • Available Balance: 20,000 USDT

Maintenance Margin = 2 × 100,000 × 0.5% = 1,000 USDT

Maximum Loss Covered = 20,000 − 1,000 = 19,000 USDT

Liquidation Price = (100,000 × 2 + 1,000 − 2,000) ÷ 2 = 99,500 USDT

(Rounded up)

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Post-Liquidation Outcome

  • If losses exceed margin, the entire margin is lost.

  • If losses are smaller than margin, remaining margin is returned.

Liquidation execution is irreversible and may occur at unfavorable prices during extreme market volatility.

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