1. Partial Liquidation
An option gives the contract buyer the right, but not the obligation, to buy or sell an underlying asset. Since no margin is required for holding a long position, partial liquidation does not occur due to the short of margin. A seller, who has the obligation to fulfill a contract, is required to place a position margin and meet the maintenance margin requirement. If the seller’s account balance drops below the maintenance margin level because of market volatility, Partial Liquidation will be triggered and will not stop until the account’s risk is low enough. After the Partial Liquidation is completed, the account status resumes normal.
During Partial Liquidation:
- Investors cannot trade in their accounts. However, they can deposit more margin to lower account risk and get out of Partial Liquidation status as soon as possible.
- If there are multiple options position in an options account, the system will liquidate first those positions whose liquidation would be most effective in reducing the risk of the account.
- Every time when a liquidation order is fulfilled, the options account will be charged with a liquidation fee. The liquidation fee will be added to our insurance fund.
- When account risk is low enough, Partial Liquidation stops and the account status resumes normal.
- If the market moves further against users’ account positions and their account equity drops below the Liquidation level, Liquidation will be triggered due to failure to meet the minimum margin requirement.
During Partial Liquidation, if the market moves further against users’ account positions and their accounts fail to meet the minimum margin requirement, Liquidation will be triggered to help them stop loss immediately.
Liquidation rule: when the account equity is not enough to cover the transaction fees for closing positions, liquidation fee, and slippage loss*, Liquidation will be triggered.
Consequences of Liquidation: Liquidation of all positions takes place while taking into account the mark price and the slippage loss. Transaction fee and liquidation fee will be charged. After Liquidation, if the net account assets are negative, they will be first compensated by the liquidation fee. If the loss cannot be fully compensated, the rest will be covered by OKEx insurance fund at the end of the settlement period. A clawback will only occur if the insurance fund can not cover the deficit. Only users that have made a profit in such settlement period will be subject to a clawback.
*Slippage Loss: It is the difference between the mark price and the expected option filled price. Therefore, the filled price of selling (buying) a position is calculated as the mark price minus (plus) the slippage loss during Liquidation.