Termination is the closing or reducing of one or more profitable positions to settle a derivative position that has gone into stage three liquidation.
Important: Termination will only occur if the liquidation fund's supply is inadequate to cover the loss remaining after the liquidated position's allotted collateral has been depleted.
What are the stages of liquidation
When a position gets liquidated, the system can go through three stages.
Stage 1:
The system first tries to close the position using the margin collateral allocated to the newly liquidated position.
Stage 2:
Should the forfeited collateral be insufficient to terminate the position completely, the liquidation fund will cover the remaining loss if sufficient funds are available.
Stage 3:
Termination occurs if there are any remaining losses and the liquidation fund has been drained. The system will select the position with the highest percentage gain on the derivatives platform and close/decrease it to offset the remaining losses. It will continue to close the position with the highest percentage gain until all losses have been covered.
If these positions are terminated, they will almost certainly be closed at a loss relative to current market prices. When considering the risks associated with derivatives trading, it is necessary to consider the likelihood of a position being terminated, even if this occurs only in extreme situations.
Why a position can be terminated
Termination occurs solely on profitable positions and begins with the open position with the highest percentage profit. If your position was terminated, this means that our liquidation fund combined with the collateral assigned to a liquidated position was insufficient to cover the loss on that liquidated position.
If you have any questions, please feel free to reach out to Bitfinex Support. We are happy to help!
