Liquidation

ModeMax implements a rigorous risk management process to help protect both the traders and the market makers, and ensure fairness for both parties. To understand how the liquidation process works, please first familiarize yourself with the terms below:

Initial Margin Requirements (IMR): The Initial Margin Requirement is the USD value of equity required to open a position or increase position size. Each market will have a parameter called “Initial Margin Fraction” (IMF), which is a percentage of position size to be treated as IMR for that position. The IMR is displayed in USD.

Initial Margin Fraction (IMF): The Initial Margin Fraction is a parameter set by ModeMax, and is used to determine the initial margin requirement. It is displayed as a percentage & different asset classes will have different IMF.

Maintenance Margin Requirements (MMR): The Maintenance Margin Requirement is the USD value of equity required to maintain the position before it is liquidated by the platform. Each market will have a parameter called “Maintenance Margin Fraction” (IMF), which is a percentage of position size to be treated as MMR for that position. The MMR is displayed in USD.

Maintenance Margin Fraction (MMF): The Maintenance Margin Fraction is a parameter set by ModeMax, and is used to determine the Maintenance Margin Requirement. It is displayed as a percentage & similar to IMF, the MMF will be different for different asset classes.

Equity Value: The Equity Value is the net value of your account. It is the summation of unrealized profits/losses, unrealized fees (funding/borrowing/position opening/closing/liquidation), and collateral value.

Collateral Value: The Collateral Value is calculated based on the collateral assets and their respective market prices multiplied by the collateral asset LTV.

Now, let's take an example of Bob, who deposited 1 BTC as collateral to leveraged trade on ModeMax. For this example, let's assume the following:

Bob then decided to open two leveraged long positions on ETH and MODE on ModeMax.

Note that for this example, we will ignore fees accrued to the leveraged positions for the sake of simplicity. Below are the relevant info of Bob's two positions at the time of position opening:

Two days later, ETH price appreciated to $1,780/ETH while MODE price dropped to $0.65/MODE. At this point, the following statistics represent Bob's account & positions:

At this point, while the price of MODE dropped significantly, Bob's Equity Value ($1,600) is still higher than both the Initial Margin Requirement ($200) and the Maintenance Margin Requirement ($100). Therefore, Bob can still freely withdraw his collateral (up to $1,400) and his account will not be liquidated for the time being.

A day later, the price of MODE and ETH moved to $0.91 and $1,495 respectively. At this point, the following statistics represent Bob's account & positions:

At this point, Bob's Equity Value ($200) has reached the Initial Margin Requirement ($200) but has not reached the Maintenance Margin Requirement ($100). Therefore, a limit on collateral withdrawal has been placed on Bob's sub account, but his account is not yet liquidated.

A few minutes later, the price of MODE and ETH moved again to $0.90 and $1,500 respectively. Below is the updated statistics of Bob's account and his positions:

At this point, Bob's Equity Value dropped below the Maintenance Margin Requirement. As a result, his sub account is liquidated, and the remaining collateral (if any) is returned to him.

PreviousFees NextOpening a Position

Last updated 5 months ago