🦑Liquidation and Margin Details

This section deals with how the Liquidation price of a position is calculated with an example.

Liquidation on the ZKX exchange is an automated mechanism that ensures the financial stability and integrity of the platform by preventing excessive losses that could affect the overall liquidity of the platform. It occurs when a trader's margin balance is insufficient to support their leveraged positions.

When a trader engages in leveraged trading on the ZKX exchange, they are essentially borrowing funds to increase the size of their position. This practice can amplify profits but also magnify potential losses. To manage this risk, ZKX requires traders to maintain:

1. A minimum margin balance, known as the Initial Margin(IM), IM is determined by the size of the position, its opening price, and the leverage used. (Check tables below.)

2. ZKX has set a Maintenance Margin Fraction (MMF) that defines the percentage of the position's value needed to keep it open. It's the threshold below which the trader's position becomes at risk of liquidation. Currently, it is set at a constant value for each market 0.075 %. Refer to the section MMF in the table below.

3. If market volatility causes the value of the Open position to drop, the exchange triggers a liquidation process to close the position and protect the system from further losses.

4. Mark Price is used in calculating liquidations. Also, we use Mark Price for any conditional order execution/trigger. We model Mark Price as fair and tamper-resistant. For more information check the Pricing section in docs.

5. The liquidation process takes into account the unrealized profit and loss (UPnL) of a position, the current leverage, and position size to arrive at the liquidation price — the specific price level at which liquidation is triggered. This price is calculated based on the initial margin, the maintenance margin requirements, UPnL, and the direction of the trade (long or short). Check the liquidation price formula and illustration in the table.

6. The goal of ZKX’s liquidation policy is to maintain market stability and ensure traders can manage risk effectively. So we share some portion of this liquidation revenue with token stakers and the rest is transferred to our Insurance fund to manage and mitigate risk.

For further information and calculations, refer to the tables given below.

This section illustrates the entirety of the process of Liquidation with examples.

Details of Constant factors with example:

Description	Const	Formula	Example
Current balance	Balance	-	1000 USDC
Initial Margin Fraction, in percentage	MMF	A constant value for each market	0.075 %

Details of Positions with example:

Field	Description	Variable	Formula	Example. Position 1, Long	Example. Position 2, Short
Postion	A direction of a position: Long or Short	Dir	Long = 1 ; Short = -1	Dir = 1 (Long)	Dir = -1 (Short)
Position Size	Quantity of contract in position	Q	Input parameter	Q = 2	Q = 6
Avg Execution Price (avgExecutionPrice)	Average price paid to enter the position	OpPr	Input parameter	OpPr = 1000	OpPr = 100
Leverage	Current leverage of the position	Lev	Input parameter	Lev = 5	Lev = 2
Current Market price	Current Price	Price	Input parameter	Price = 1200	Price = 110
Initial Margin	Initial Margin	IM	$IM = \frac{Q \times OpPr}{Lev}$	$IM = \frac{2 \times 1000}{5} = 400$	$IM = \frac{6 \times 100}{2} = 300$
Maintenance Margin	Maintenance Margin	MM	$MM = Q *Price *MMF$ *OpPr changed to Price	$MM = 2 \times 1000 \times 0.075 = 150$	$MM = 6 \times 100 \times 0.075 = 45$
Unrealized Profit and Loss	Unrealized profit and LLoss of position	UPnL	$UPnL = Dir \times Q \times (Price - OpPr)$	$UPnL = 1 \times 2 \times (1200 - 1000) = 400$	$UPnL = -1 \times 6 \times (110 - 100) = -60$
Liquidation	Liquidation Price	$LiqPr$	$LiqPr = \frac{\text{Balance} - OpPr \times Q \times Dir + TotalUPnL - UPnL - TotalMM + MM}{Q \times (MMF - Dir)}$	$LiqPr = \frac{(1000 - 1000 \times 2 \times 1 + 190 - 200 - 195 + 150)}{2 \times (0.075 - 1)} = \frac{-1055}{-1.85} \approx 570.2702703$	$LiqPr = \frac{(1000 - 100 \times 6 \times (-1) + 190 - (-10) - 195 + 45)}{6 \times (0.075 - (-1))} = \frac{1650}{6.45} \approx 255.8139535$

Account Information

Field	Variable	Formula	Example
Total positions count	Count	-	Count = 2
Total Initial Margin	TotalIM	$\text{TotalIM} = \sum_{i=1}^{\text{Count}} IM_i$	$TotalIM = 400 + 300 = 700$
Total maintenance margin	TotalMM	$\text{TotalMM} = \sum_{i=1}^{\text{Count}} MM_i$	$TotalMM = 150 + 45 = 195$
Total Unrealised PnL	TotalUPnL	$TotalUPnL = \sum_{i=1}^{\text{Count}} UPnL_i$	\begin{equation} TotalUPnL = 200 + (-10) = 190 \end{equation}
Total Margin	TotalMargin	$TotalMargin = \text{Balance} + TotalUPnL$	$TotalMargin = 1000 + 190 = 1190$
Available Margin	AvailableMargin	$AvailableMargin = TotalMargin - TotalIM$	\begin{align*} \text{AvailableMargin} &= 1190 - 700 \\ &= \boxed{490} \end{align*}
Max withdrawable Balance	MaxWithdraw	$\text{MaxWithdraw} = \text{Balance} - \text{Total Initial Margin} + \text{Total U PnL}$	$\text{MaxWithdraw} = 1000 - 700 + 190 = \boxed{490}$

Buy Info

Field	Variable	Formula	Example
Buying Power	BP	$BP = (TotalMargin - TotalIM) * maxLeverage$	$BP = 700* 20 = 14000$
Total Margin	Equity	$Equity = TotalMargin$	$TotalMargin = 1000 +190 = 1190$
Margin Usage %	MarginUsagePer	$MarginUsagePer =(1 - AvailableMargin/TotalMargin) * 100$	$\text{MarginUsage} = \left( 1 - \frac{490}{1190} \right) \times 100 = \left( 1 - 0.4117\right) \times 100 = 58.82$
Invested funds	Invested	$Invested = \sum_{i=1}^{\text{Count}} (\text{leverage}_i \times IM_i)$