A trader’s position will be liquidated when the value of their futures contracts hit the liquidation price. When the market is against the trader, the unrealized PnL is negative indicating the trader is losing money. If the market continues to be against the trader, to a point where the loss is beyond his maintenance margin, the trader’s position will be liquidated.
Maintenance Margin is the minimum amount you have to hold to keep a position open.
If your margin balance drops below Maintenance Margin levels, your position will be taken over by the Liquidation Engine and be liquidated.
The higher the leverage, the higher chance of being liquidated So one can imagine the chance of being liquidated will be much bigger when using 100x leverage than using 10x leverage.
For example, a trader takes on 100x leverage and goes long 1 contract at $100.00 with an initial margin of $1.00 and the maintenance margin is set at 0.5%. In this case the liquidation price is $99.5 and bankruptcy price is $99.0, without taking commission into account.
When the marked price in AAX futures contract goes down to $99.50, the trader position is liquidated by a market sell order.
If the liquidation order is filled at $99.40 due to the use of market order, the remaining margin of $0.40 will go into AAX’s Insurance Fund.
As expected, traders with a lower leverage will be less vulnerable to be liquidated. For example, a trader takes on 10x leverage and goes long 1 contract at $100.00 with a margin of $10.00 and the maintenance margin is set at 0.5%.In this case liquidation price is $90.5 and bankruptcy price is at $90.0.
**Examples above may not reflect on the real market as it varies on other conditions such as volume, fees, risk level, etc.