When the risk protection fund cannot fully take over the positions of insolvent users, counterparty liquidation may be triggered. LBank is committed to preventing such occurrences, for instance, by employing the “Fill and Kill” mechanism to minimize the market impact of counterparty liquidation.

Due to the high volatility of the cryptocurrency market and the high-leverage nature of futures trading, counterparty liquidation may still occur. To ensure the best user experience, LBank strives to minimize the likelihood of such events.

How to Assess Counterparty Liquidation Risk?

Users can evaluate their risk of counterparty liquidation by checking the priority ranking in the “Auto-Deleveraging” (ADL) indicator. The priority ranking is calculated based on users’ profits and leverage levels, using the following formula:

LeveragePnl = Margin Ratio × Profit and Loss Percentage

Where:

  • Profit and Loss Percentage = Max(0, Unrealized PnL) / Max(1, Futures Account Balance)

  • Margin Ratio:

    • If (Futures Account Balance + Unrealized PnL) ≤ 0, then Margin Ratio = 0

    • If (Futures Account Balance + Unrealized PnL) > 0, then Margin Ratio = Maintenance Margin / (Futures Account Balance + Unrealized PnL)

  • LeveragePnl Ranking Range = Rank(User’s LeveragePnl) / Total Number of Users

⚠️Typically, users with higher profits and higher leverage are prioritized for counterparty liquidation. Users can monitor their risk level via the “Auto-Deleveraging” indicator on their account page.

Counterparty Liquidation Process

When counterparty liquidation occurs:

  1. Instant Notification: Affected users will receive immediate notifications detailing the liquidation amount and bankruptcy price.

  2. Position Handling: The user’s positions will be closed at the bankruptcy price, and any unfilled orders will be canceled.

  3. Reopening Positions: After liquidation, users can reopen positions at any time.

⚠️ Note: The bankruptcy price may fall outside the futures market’s trading price range. Therefore, users are strongly advised to closely monitor the “Auto-Deleveraging” indicator’s priority ranking and adjust positions promptly to mitigate risks.

User Recommendations

To avoid the risk of counterparty liquidation, users are advised to:

  • Regularly check the “Auto-Deleveraging” indicator to ensure a lower-risk ranking.

  • Use high leverage cautiously and manage positions and funds prudently.

  • Stay informed about market volatility and adjust trading strategies accordingly.

LBank will continue to optimize its risk management mechanisms to enhance the user trading experience. For any questions, please contact customer support.