Risk Control Rules for Account Management

The unified margin (UM) trading system has multiple risk control rules for account management including forced order cancellation, forced repayment, and forced liquidation, which will be triggered sequentially when the risk indicators reach a specified level.

Risk control rules for account	Trigger conditions
Forced order cancellation	Total initial margin rate ≥ 100%
Forced repayment	Total maintenance margin ratio >90% Total margin balance becomes negative USDT debt exceeds personal debt limit (Auto Repayment)
Forced liquidation	Total maintenance margin ratio >100% Total margin balance becomes negative

 

Forced order cancellation

Forced order cancellation is BIT’s first line of protecting user's assets in adverse market conditions.

When the account risk is already higher than a certain level, but has not yet reached the risk level of forced repayment or forced liquidation, the system will cancel part of the open orders to release margin, and therefore lower the overall risk of the account. During this period, users can place derivatives reduce-only orders and spot reduce-only orders (i.e. spot orders that do not increase haircut losses or potential liabilities).

 

The process for forced order cancellation is as follows:

When the total initial margin rate of the account is greater than or equal to 100%, the system will cancel the open orders to release the occupied margin and consequently reduce the risk level of the account.

Order cancellation range: non-reduce-only orders

Order cancellation sequence: the system will cancel derivatives orders first and then cancel spot orders.

Derivatives order cancellation rules (regular): for each currency, the order will be cancelled in the descending order of the initial margin * currency index price, until the total initial margin rate is less than 100%.

Derivatives order cancellation rules (portfolio margin): cancelling all non reduce-only orders in all currencies at once.

Spot order cancellation rules: If the total initial margin rate is still greater or equal to 100% after all derivatives orders have been cancelled, then the system will start to cancel spot orders. The system will cancel all spot orders that result in a haircut loss (i.e. orders where the long currency haircut ratio > short currency haircut ratio) or orders that bring potential liabilities (borrowing mode).

 

Forced repayment

Forced repayment is BIT’s second line of protecting user's assets in adverse market conditions.

When the account risk is higher than the forced order cancellation level, but has not yet reached the risk level of forced liquidation, the system will enter the forced repayment process to pay off part of the liabilities, and therefore lower the overall risk of the account, and try to avoid the account’s position being forced liquidated.

In addition, when a customer does not hold USDT and only uses a non-USDT currency as margin to purchase options (the borrowing mode needs to be turned on), it is still possible that the total margin balance will become negative due to the decline in the market value of the currency or the decline in option value. Trigger currency exchange.

Examples are as follows:
The customer trades BTC options with a unified margin of 0.013 BTC. At this time, the BTC price is 60,000, which translates into a unified margin of 764.4 USD (0.013*60,000*(1-2%))

Position	Price	USD Value
Long BTC Option	-762	-762
0.013 BTC	60,000	764.4 (Haircut ration 2%)

Total Margin Balance = 764.4 - 762 = 2.4 USD

If the following situations occur, the system may be triggered to automatically exchange currency to repay debts If the option price deteriorates further due to changes in the underlying or implied volatility
Or the price of collateral deteriorates causing the total margin balance to become negative.

Example are as follow: BTC price becomes 59,500

Position	Price	USD Value
Long BTC Option	-759	-759
0.013 BTC	59,500	758.03 (Haircut ration 2%)

Total Margin Balance= 758.03-759=-0.97 USD

During this period, users can place reduce-only orders for derivatives or sell non-collateral currencies (i.e. currencies with a 100% haircut ratio).

Forced repayment happens when the total maintenance margin rate of the account is greater than 90%.

 

The forced repayment process is as follows:

If you have no liabilities in your account when forced repayment is triggered, the system will skip this process.

If you have liabilities in your account when forced repayment is triggered, the system will convert the available assets of high liquidity to the deficit currency and pay off the full liability.

(1). Forced repayment amount

When forced repayment happens, the system will use your available assets to buy the liability currency to repay your liability*, and make sure the amount of liability in all currencies is equal to zero after forced repayment.

Forced repayment amount = Full liabilities + Spot forced liquidation fees

*Note: Considering price fluctuations and liquidity conditions, the actual amount of currency bought by the system will be slightly more than the amount needed to repay the full liability.

(2). Forced repayment process

Same as the auto repayment process.

Example of forced liquidation (Regular mode): Liquidated liquidation is only performed for perpetual products and selling option positions. The order of forced liquidation is as follows

Step 1: Derivative Type: Contracts are liquidated first, then options are liquidated
Step 2: The currency maintenance margin is equivalent to USD (Unit MM) and the currency with a large value will be liquidated first.

Listed below:
The customer holds a position with a total maintenance margin of 700 USDT

A	BTC/USDT Perp, Unit MM=100 USDT
B	ETH/USDT Perp, Unit MM=200 USDT
C	BTC/USDT Option, Unit MM=150 USDT
D	ETH/USDT Option, Unit MM=250 USDT

Since the contract takes precedence over options to close positions and then determines the currency maintenance margin order from large to small, the closing order of the above positions is BADC.

(3). Liability repayment sequence

When forced repayment happens, the system will repay the currency liabilities in decreasing order of currency liquidity:

Sequence of repayment	Currency
1	USD
2	USDT
3	BTC
4	ETH
5	BCH

 

(4). Forced repayment fees

The system trading fees generated during the forced repayment process will be charged at the user’s actual spot trading rate.

Note: forced repayment of liabilities will reduce the account's interest expense in the future and release the margin occupied by potential liabilities, thereby reducing the account's risk level. If the account risk continues to increase causing USD total MM rate greater than 100%, the account will enter a forced liquidation process.

 

Forced liquidation

In adverse market conditions, If the account risk indicators still fail to return to normal after the forced order cancellation and forced repayment processes, then the account will enter forced liquidation process when USD total MM rate of the account is greater than 100%. When forced liquidation happens, the system will cancel orders, liquidate derivatives positions, sell available assets, and repaying liability in turn. During this period, the system will recheck the risk level of the account after each step, and if USD total MM rate of the account is within 100%, the forced liquidation process will be exited immediately.

When the forced liquidation process begins, users cannot perform any other operations except logging in to view assets, depositing and transferring funds from other main accounts or sub-accounts.

Regular Mode

The forced liquidation process is as follows:

(1). Cancel open orders

When the account enters the forced liquidation process, the system will cancel all open orders for the account (except for stop orders).

 

(2). Derivatives forced liquidation

Next, the account will enter the derivatives forced liquidation process.

Derivatives forced liquidation sequence: The derivatives position will be closed from the largest to the smallest based on the USD value of the currency’s maintenance margin.

Forced liquidation process (Regular): Same as the classic mode.

Forced liquidation process (Portfolio margin): Same as the classic mode.

 

(3). Sell available assets

If the account USD total MM rate is still greater than 100% after derivatives forced liquidation, the system will sell available assets in the account to buy USDT in a certain order. In this way, the account risk will be reduced as the haircut of other assets is released and USD total collateral increases.

Range of available assets: Positive available assets with haircut ratio greater than 0.

The sequence of selling available assets:

The system will sell available assets in descending order of haircut ratio, and sell in descending order of USDT value if the haircut ratio is the same. The selling process will be terminated when the account USD total MM rate is within 100%.

 

(4). Repay liability

If the account USD total MM rate is still greater than 100% after selling all available assets, the system will buy the deficit currency with USDT and pay off the liability.

The system will place an order (sell USDT, buy the deficit currency) for each liability currency in the following sequence. If the USD total MM rate is within 100%after the liability of a currency is paid off, the overall forced liquidation process will be exited. Otherwise, the system will continue to place orders and pay off the liabilities.

Sequence of repayment	Currency(liquidity from high to low)
1	USD
2	USDT
3	BTC
4	ETH
5	BCH

 

 

(5). Forced liquidation fees

In the forced liquidation process:

1. The system trading fees generated during the [Sell available assets] and [Repay liabilities] processes will be charged at the forced liquidation rate (0.5%).
2. The system trading fees generated during the [Derivatives forced liquidation] process will be charged the actual trading fees and forced liquidation fees (0.5%).

Portfolio Margin (PM) Mode

Liquidation triggering logic: Total collateral <= total maintenance margin or total maintenance margin rate >=100%

Step 1: When liquidation is triggered, the currency will be sold to repay the debt (please refer to the Regular mode of selling currency to repay the debt).
Step 2: If the total maintenance margin ratio is still >=100% after repaying the debt, the risk control engine will reduce directional risk through the perpetual contract Delta Hedge.

Example: 
The customer buys 1 BTC-USDT-27SEP24-60000-C option, the total collateral is 12,000 USDT, and the maintenance margin rate is 100.05% to trigger the liquidation condition.

Account transactions are as follows:

Product	Nominal principal (currency)	Instrument
Option	+1BTC	BTC-USDT-27SEP24-60000-C

 

The account currency dimensions are as follows:

Currency	Mark Price	Delta	Vega	Gamma	Theta	MM	MM%
BTC	63578	+0.68 BTC	160.32	0.0000105	-36.95	12,067	100.558%

Note: Account delta does not include options that will expire soon
Since the total maintenance margin ratio is >100%, the risk control engine will conduct a perpetual contract Delta Hedge and sell a 0.078 BTC (approximately 5,000 USDT) perpetual contract at the market price to reduce the overall account risk. The information after the liquidation is as follows

 

Account transactions are as follows:

Product	Nominal principal (currency)	Instrument
Option	+1BTC	BTC-USDT-27SEP24-60000-C
Perpetual	-0.078 BTC	BTC-USDT Perpetual