To ensure the stable operation of the contract market and the security of user trading, KTX employs a comprehensive risk control mechanism, including the mark price liquidation mechanism, insurance fund mechanism, and ADL automatic deleveraging mechanism. Users are advised to fully understand the relevant rules and potential risks before participating in contract trading.
1. What is Forced Liquidation?
When a user's account margin is insufficient to maintain the current position risk, the system will trigger forced liquidation (Liquidation) to prevent larger losses or the risk of negative balance in the account.
KTX uses the mark price as the basis for liquidation judgment, rather than the latest transaction price. The mark price helps reduce the impact of abnormal trades and short-term price spikes on positions during extreme market volatility.
2. Explanation of Margin Modes
Cross Margin Mode
In cross margin mode, all cross margin positions in the account share the margin, and the overall account risk is jointly borne by all positions. When the account's position margin ratio reaches or exceeds 100%, the system will initiate the forced liquidation process and execute liquidation on all cross margin positions in the account.
Isolated Margin Mode
In isolated margin mode, each position independently calculates margin and risk rate, and positions do not affect each other. When the position margin ratio of a certain isolated margin position reaches or exceeds 100%, the system will only liquidate that specific position without affecting other positions.
3. Explanation of Maintenance Margin
Margin Ratio Calculation Formula
Margin Ratio = Maintenance Margin ÷ Margin Balance
Where:
Maintenance Margin
Maintenance Margin = Position Quantity × Entry Price × Maintenance Margin Rate + Funding Fee in the Same Direction
Because market prices fluctuate in real time, the margin ratio also continuously changes. When position losses expand, funding fees increase, or account margin is insufficient, the margin ratio may rise rapidly, triggering forced liquidation.
4. Explanation of Liquidation Price Calculation
Users can estimate the liquidation price through the contract calculator provided by the platform. However, due to factors such as fees, funding rates, position changes, and market volatility, the calculated result may differ from the actual liquidation price during trading.
Liquidation Price Calculation in Cross Margin Mode
In cross margin mode, multiple trading pairs and positions in both directions share margin, so the liquidation price is affected by the overall account positions and profit and loss situation.
Cross Margin Liquidation Price Formula
Current Trading Pair Entry Price -
(Available Margin in Trading Account + All Trading Pairs’ Cross Margin Position Margin + Unrealized P&L from Self-Trading of Long and Short Positions in Current Trading Pair + Unrealized P&L of Other Trading Pairs’ Cross Margin Positions - All Trading Pairs’ Cross Margin Maintenance Margin - All Trading Pairs’ Cross Margin Fees) ÷ Net Position Quantity of Current Trading Pair
Calculation of Unrealized P&L from Cross Margin Long-Short Hedging
When a user holds both long and short positions in the same trading pair simultaneously, the system calculates the corresponding unrealized profit and loss.
Calculation Formula
P&L = min(abs(Hl), abs(Hs)) × (Ps - Pl)
Where:
- Hl: Long position quantity
- Hs: Short position quantity
- Pl: Long position entry price
- Ps: Short position entry price
Liquidation Price Calculation in Isolated Margin Mode
In isolated margin mode, each position independently calculates risk and does not affect others.
Isolated Margin Liquidation Price Formula
Entry Price - (Position Margin - Maintenance Margin - Fees) ÷ Position Quantity
5. Insurance Fund Mechanism
To reduce the risk of negative balances under extreme market conditions, KTX has an Insurance Fund mechanism.
After a user's position is forcibly liquidated:
- If the liquidation price is better than the bankruptcy price, the remaining funds will be transferred to the insurance fund;
- The insurance fund is mainly used to cover losses caused by negative balances during extreme market volatility;
- This helps reduce the likelihood of other users being affected by negative balances or systemic risks.
The insurance fund mechanism helps improve overall market stability and risk tolerance.
6. ADL Automatic Deleveraging Mechanism
In extreme market conditions or when market liquidity is insufficient, if the insurance fund cannot fully cover negative balance losses, the system may trigger:
ADL (Auto-Deleveraging) Automatic Deleveraging Mechanism
ADL means the system automatically reduces the positions of some counterparties who are in profit based on position risk and profit level to lower overall market risk.
Generally, highly leveraged, high-yield, and higher-risk ranked profitable positions are more likely to be prioritized in the ADL queue.
Once ADL is triggered, the system will partially or fully reduce the relevant positions at market executable prices.
7. Risk Warning
Digital assets and contract markets are highly volatile, and high leverage trading carries significant risks. Extreme market conditions may lead to sharp price fluctuations, widened slippage, partial fills, forced liquidations, and ADL automatic deleveraging.
Low liquidity contracts may experience incomplete stop-loss executions or forced liquidations of remaining positions due to insufficient market depth during sharp volatility.
All investments carry risks. Users should manage their positions and leverage according to their own risk tolerance and trade cautiously.