2.5 Futures Liquidation Protocols on Electra: Formula and Process

2.5.1 Liquidation on Electra: Formula and Explanation

Liquidation is the process of forcibly closing a trader's position when the margin level becomes insufficient to maintain the open position. This mechanism protects the exchange and other market participants from losses caused by a trader's inability to meet obligations. On Electra, liquidation is handled automatically through smart contracts that monitor the margin level on traders' accounts in real time.

2.5.2 What is Liquidation?

Reason for Liquidation:

• Liquidation occurs when a trader's margin level (available funds) drops below the maintenance margin required to keep the position open.

Key Causes of Liquidation:

• Sudden market movements against the open position.

• Excessive leverage usage.

• Inadequate margin account funding when the margin level declines.

Purpose of Liquidation:

• Minimize platform losses.

• Protect protocol liquidity and other traders.

2.5.3 What Happens During Liquidation?

Automatic Closure:

• When the asset price reaches the liquidation price, the smart contract closes the trader's position.

Funds Deduction:

If a position is liquidated due to insufficient margin, the funds in the margin account - including the deposit and unrealized profits/losses - are used to cover the position balance. This ensures platform stability and protects other market participants.

Liquidation Fees: A fee of 0.5% to 2% of the liquidated position size is charged upon forced closure.

• How it’s calculated: Fees depend on current market conditions and the size of the liquidated position.

• Purpose: Covers platform operational costs and supports the liquidation mechanism's sustainability.

Electra aims to make the process transparent and seamless. If you have questions or need assistance, our support team is ready to help.

Notifications: Traders receive a liquidation alert. Under cross-margin mode, the system may use the entire account balance to cover losses.

2.5.4 Electra Futures Liquidation Protocols

Cross-Margin:

• The entire margin account balance is used to cover losses on open positions.

• Liquidation occurs if the overall account balance drops below the maintenance margin.

Isolated Margin:

• A fixed amount of margin is allocated for each position.

• Liquidation affects only the specific position, not the entire account balance.

Liquidation Algorithms:

• Automated Liquidation: All operations are managed by smart contracts, eliminating third-party involvement.

• Liquidator Rewards: To stimulate liquidity, liquidators receive fees as rewards.

Dynamic Margin Management:

• Electra employs adaptive algorithms to minimize liquidation risks, accounting for market volatility.

2.5.5 Liquidation Formula (Cross-Margin)

For Long Positions (LONG):

For Short Positions (SHORT):

Example Calculation (LONG):

• Entry Price: $25,000 (BTC/USDT)

• Position Size: $10,000

• Margin Balance: $1,500

• Maintenance Margin: $500

• Liquidation Price: $22,500

2.5.6 Liquidation Fees on Electra

On the Electra platform, the liquidation fee varies depending on market conditions and the size of the position. This approach ensures a fair distribution of costs among the participants in the liquidation process.

Fee Range:

• Liquidation fees on Electra range from 0.5% to 2% of the liquidated position size.

Factors Influencing Fee Size:

• Position Size: Larger positions are more likely to incur fees closer to the upper limit.

• Market Liquidity: High volatility and low liquidity may result in higher fees to incentivize liquidators.

• Margin Type:

• • Isolated margin: Fees are calculated separately from the total account balance.

  • Cross-margin: Fees account for the full amount of utilized funds.

Example Fee Calculation:

• Liquidated Position: $10,000

• Liquidation Fee: 1.5%

• Total Fee: $10,000 × 0.015 = 150 USDT

This fee is deducted from the trader's margin account and may include the liquidator's reward, which incentivizes the efficient processing of market operations. Electra strives for transparency, so all liquidation parameters and fees are available to traders in real-time.

Conclusion

Electra’s automated liquidation protocols ensure transparency and reliability. Traders must monitor their margin levels, especially when using leverage, to reduce the risk of liquidation. Smart risk management and diversified positions help preserve capital even in volatile market conditions.