What is a liquidation buffer?
At a high level, the liquidation buffer chart helps you see how close you are to a liquidation. The liquidation buffer is defined as funds available for margin that are in excess of the liquidation threshold, expressed as a percentage of the difference between initial margin and the liquidation threshold.
We may automatically liquidate your positions when your buffer hits 0%.
How is the liquidation buffer determined?
The liquidation buffer provides you with a sense of how close you are at any point in time to liquidation. It is calculated as:
(Available for margin - Liquidation threshold) / (Initial margin - Liquidation threshold)
If your margin ratio reaches 0%, your futures positions will be liquidated as necessary. This occurs when your funds available for margin equal the liquidation threshold.
Where can I see my liquidation buffer?
You can see your liquidation buffer prior to making a trade and on a chart in the futures trading page.
How do I know if my liquidation buffer is getting low?
When you start, you will have a liquidation buffer of more than 100%.
As you trade, if your positions have losses and your liquidation buffer drops, you will receive a warning in the Futures trade page or via email, SMS, or push notifications. You’ll get two warnings when your liquidation buffer drops: once at 100% and then again at 20%.
As the liquidation buffer drops, you should keep a close eye on your portfolio and add funds or close some positions. If your liquidation buffer drops to 0%, you’ll be liquidated down and see a potential reduction in your cash balances.
When do I have to put money in to avoid liquidation?
Cash is always deposited into your Coinbase Inc. (CBI) spot account. Cash will automatically be transferred to your Coinbase Financial Markets (CFM) futures account to satisfy margin requirements.
You’ll need to ensure your cash balance and futures margin equity never drop below the maintenance margin for your portfolio. To help you do that, we recommend looking at the liquidation buffer value.
At a high level, the liquidation buffer chart helps you see how close you are to a liquidation. The liquidation buffer is defined as funds available for margin that are in excess of the liquidation threshold, expressed as a percentage of the difference between initial margin and the liquidation threshold.
We may automatically liquidate your positions when your buffer hits 0%.
When you start, you will have a liquidation buffer of more than 100%.
As you trade, if your positions have losses and your liquidation buffer drops, you will receive a warning in the Futures trade page or via email, SMS, or push notifications. You’ll get two warnings when your liquidation buffer drops: once at 100% and then again at 20%.
As the liquidation buffer drops, you should keep a close eye on your portfolio and add funds or close some positions. If your liquidation buffer drops to 0%, you’ll be liquidated down and see a potential reduction in your cash balances.
If you’re using a bank account to add cash to your CBI spot account, we highly recommend that you do so early to avoid liquidation, since banks can take 3-5 business days to process your transaction. Adding cash from your linked USD balance is instant.
If there are insufficient funds in your account to satisfy a deficit or margin requirement, Coinbase Inc./Coinbase Financial Markets may also sell any other cryptocurrency held in your CBI spot account.
More information on the risks of trading futures can be found in the disclosure we provided you when opening your account (you can review your futures agreements and disclosures here).
How do I reduce the likelihood of a liquidation on my positions held overnight and on weekends?
Margin requirements may increase throughout the week (for example, during overnight or weekend hours). Customers can reduce the likelihood of a liquidation by adding additional collateral to their account to increase their liquidation buffer. Customers can add additional funds to their Coinbase Inc. account at any time.
What happens when I am liquidated?
If at any point in time you don’t have the required funds in your Coinbase Financial Markets (CFM) futures account and/or your Coinbase Inc. (CBI) spot account to meet the margin requirements to maintain your futures positions, we may automatically liquidate some or all of your futures positions. We will first cancel open spot and futures orders and then liquidate open futures positions in the CFM futures account to satisfy margin requirements.
Liquidation does not offer the same assurance or price for exiting open positions as self-executing trades to close open positions. Losses incurred due to futures trading may exceed the value of your margin. You may lose all funds held by CFM as margin and all cash in your CBI spot account. If you do not have the required funds in your accounts, your futures position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.
More information on the risks of trading futures can be found in the disclosure we provided you when opening your account (you can review your futures agreements and disclosures here).