Ladder Balancing Mechanism

What is Forced Balancing?

The margin rate reflects the risk level of a user’s position. It is calculated as:

$$\text{Margin Rate} = \frac{\text{Equity}}{\text{Position Value}}$$

When the margin rate approaches the minimum maintenance margin rate, the system may intervene to protect users and market stability by triggering a forced balancing.

⚠️ All margin rate calculations are based on the marked price to avoid forced liquidation caused by illiquidity or price manipulation.

Ladder-Based Position Reduction

To prevent the market impact and losses associated with fully liquidating large positions, the system employs a laddered reduction mechanism.

• Each ladder tier corresponds to a higher maintenance margin rate.

• If the margin rate is insufficient for the user’s current tier, the system will partially reduce the position to bring it to the next lower tier.

Forced Balancing Process

Once the margin rate drops below the required threshold, the system initiates the following steps to avoid full liquidation:

1. Cancel all open orders for the contract.

2. Match internal long and short positions to reduce risk.

3. If the margin rate is still insufficient, the system performs forced position reduction:

   • The position is reduced to match the maximum allowed size of the next lower gear.

   • The goal is to restore a margin rate > 0%.

$$\text{Positions to reduce} = P_{\text{current}} - P_{\text{next gear max}}$$

1. If the user is in the lowest gear and the margin rate remains insufficient, the entire position is forcibly closed.

Restrictions During Forced Balancing

During the forced reduction process:

• The user cannot place or modify orders related to the contract.

• In restricted position mode, the system will:

  • Place a limit order to reduce the number of contracts required.

  • Use a price slightly better than the current market price.

  • Freeze the affected position direction during the process.

Example (BTC Contract)

Assume:

• User is in Gear 3 or above: P_current = 15,000

• Gear 1 max allowed position: P_{gear 1 max} = 2,000

• Required reduction:

$$15,000 - 2,000 = 13,000 \text{ contracts}$$

If the system determines the user's margin rate is less than:

$$\text{Maintenance Margin Rate}_{\text{Gear 3}} + \text{Closing Fee Rate}$$

It will not immediately liquidate the entire position. Instead, it initiates a partial forced reduction by reducing the position by two gears.

If the user is in restricted mode, these 13,000 contracts will be placed as limit orders at a slightly favorable price, and the position remains frozen until the reduction is complete.