Bitget beginner's guide: Understanding the liquidation mechanism in futures trading

What is liquidation?

Liquidation is an important risk management mechanism in Bitget's futures trading, designed to protect both users and the platform from potential losses caused by high market volatility. When a user's account margin becomes insufficient to support their open positions, the system automatically liquidates those positions to prevent the account balance from turning negative. Bitget uses an advanced liquidation system that continuously monitors market prices and account risk in real time, ensuring a fair and stable trading environment. Whether trading USDT-M perpetual futures or Coin-M futures, the liquidation mechanism relies on the mark price as the key reference to avoid unnecessary liquidations caused by price manipulation or low liquidity.

Refer to liquidation overview for details.

Liquidation price calculation

The liquidation price is a crucial concept in Bitget futures trading, as it directly determines when a position is at risk of being liquidated. It's influenced by several key factors:

• Position direction and size: Whether you're going long or short, and how many contracts you hold.

• Leverage: The higher the leverage, the closer the liquidation price is to the entry price, increasing the risk.

• Initial margin and maintenance margin: The initial margin is the capital required to open a position, while the maintenance margin is the minimum required to keep it open. Liquidation is triggered when the account balance falls below the maintenance margin.

• Mark price: Bitget uses the mark price — rather than the last price — to calculate liquidation, reducing impact of abnormal market volatility.

The exact formula depends on your margin mode. For isolated margin, the formulas are:

• Long position liquidation price = average entry price × (1 - initial margin rate + maintenance margin rate)

• Short position liquidation price= average entry price × (1 + initial margin rate – maintenance margin rate)

For example:

You open a position of 1 BTC in BTCUSDT perpetual futures with 10x leverage at an entry price of 50,000 USDT, an initial margin rate of 10%, and a maintenance margin rate of 0.5%. The liquidation price for a long position is approximately 45,750 USDT, and the liquidation price for a short position is approximately 54,250 USDT.

When does liquidation occur?

Liquidation is triggered based on your margin level and market price fluctuations. Common scenarios include:

1. Mark price reaches the liquidation price: When the mark price reaches or exceeds the calculated liquidation price, the system will trigger liquidation immediately.

2. Margin ratio falls below maintenance margin: Bitget calculates your margin ratio (the ratio of the account balance to the maintenance margin required for the position) in real time. Liquidation occurs when this ratio drops to 100% or lower.

3. Extreme market volatility: In fast-moving markets (e.g., during flash crashes or price surges), if you fail to add margin in time, liquidation can happen quickly.

Bitget offers a margin warning system that notifies you when your position is approaching liquidation, giving you a chance to add margin or adjust your position.

How does the liquidation process work?

Bitget's liquidation process is designed to be efficient and transparent, ensuring prompt liquidation when risk is triggered. Here are the steps:

1. Risk monitoring and alerts: The system continuously monitors your margin ratio and mark price. If your position approaches the liquidation threshold, you'll receive a warning.

2. Liquidation trigger: If no action is taken and the mark price reaches your liquidation price, the system automatically assumes control of your position.

3. Closing position at market price: Bitget will attempt to close your position at the best available market price. If market liquidity is insufficient, the Auto-Deleveraging (ADL) mechanism may be triggered.

4. Account settlement: If your loss exceeds the margin, Bitget's insurance fund will cover the shortfall to prevent negative balances.

5. User notification: You'll receive a detailed report of the liquidation, including execution price, quantity, and changes to your account balance.

Bitget also supports auto-margin call, a feature that automatically transfers funds from your available balance to your position to reduce the chance of liquidation. You can enable this manually in your settings.