Unlike traditional exchanges, SnapEx is a simple CFD trading platform which provides liquidity to the users for instant order executions.
In other words, SnapEx is taking the market depth risk on behalf of users. In order to provide a better service and a more secure trading environment to our users, SnapEx will be improving the hedging mechanism.
This will allow our users to continue enjoying simple and instant trading with the most secure possible trading experience. Hence, a new set of stop-loss price calculations will be implemented hereon in.
Stop-Loss Rules, Initial & Maintenance Margin Ratio, Forced Liquidations
The Stop-Loss price is a price set by users at order insertion and the calculation of the minimum allowed stop-loss price is listed below:
Initial & Maintenance Margin Ratio
We are fixing the Initial Margin Ratio and Maintenance Margin Ratio for all CFD tokens universally.
The fixed rates of Initial Margin Ratio and Maintenance Margin Ratio are:
- Initial Margin Ratio = 1%
- Maintenance Margin Ratio = 0.5%
The stop-loss ratio is the key ratio to calculate the stop loss price for long positions and short positions. It is dependent only on several constants and leverage, which is a user-controlled variable.
Stop-Loss Ratio (Both Long and Short Sides) = 1 - (Initial Margin Ratio x 100 / Leverage - Maintenance Margin Ratio)
Stop-Loss Price (Long Side) = Open Position Price x Stop Loss Ratio
Stop-Loss Price (Short Side) = Open Position Price x (2 - Stop Loss Ratio)
Once the position reaches the stop loss price, the position will be force-liquidated and taken over by the stop-loss engine. At this stage, the user’s stop loss is equal to the loss when his or her position maintenance margin ratio falls to zero. The maximum loss will not exceed the total margin of the liquidation position.
When the stop-loss is triggered, our risk management system will take over all the holding positions. The liquidation loss of the user will be the loss when the maintenance margin ratio equals to 0.
At the same time, the risk management system will send a closing order to the market at a price at which trading efficiency and liquidation profit are maximized, based on market liquidity, bid-ask spread, and referencing index prices in external exchanges.
The closing order will be closely monitored by our system. If the order remains unfilled after a long period of time, our system will re-evaluate the market depth, basis and the index price to create a new closing order until it is fully fulfilled.
After the stop-loss occurs, the stop-loss positions will be separated from the user's equity balance. If the positions are not fully fulfilled, the loss will be logged as the user's stop loss. The users will not suffer further losses for the stop-loss positions.
In order to avoid or reduce the occurrence of a forced liquidation event, traders can adopt the following methods:
- Adding margin (Variable Margin)
You can make the forced liquidation price far away by adding position margin for running orders. This action will not increase your trading fees.
- Use a lower leverage
Lower leverage will allow you to have a higher stop loss ratio.
You can preset stop loss price at any price between forced liquidation price and opening price to avoid forced liquidation.