Risk Limit Levels in Futures Trading
1.What is risk limit level?
Risk limit levels are essentially a risk management mechanism that limits the position risk of traders. In volatile markets, traders using high leverage and holding large positions can significantly impact the market when liquidated, thereby posing additional risks to other traders. Echuca Trading's futures apply risk limit level rules to all users. This means that traders with large positions need more initial margin to hold positions, further controlling risks and protecting other users from additional risks. When a large position is liquidated, a tiered reduction approach is used to minimize market impact.
The risk limit level includes five elements: level, risk limit (position value), maintenance margin rate, minimum initial margin rate, and maximum available leverage.
The risk limit level increases with the increase of position value. As the level increases, both the maintenance margin rate and the initial margin rate also step up (i.e., tiered margins). However, the greater the position value, the lower the maximum leverage available.
Additionally, each contract has a specific maintenance margin rate. The margin requirement to maintain a position will increase or decrease with changes in the risk limit.
✅Example:
With the BTC perpetual contract (USDT), When the risk limit (position value) is 5,000 USDT, the corresponding level is 1, with a maintenance margin rate of 0.4%, minimum initial margin rate of 0.8%, and a maximum leverage of 125x.
When the amount limit reaches 500,000 USDT, the level is 2, with a maintenance margin rate of 0.5%, an initial margin rate of 1%, and a maximum leverage of 100x. As the risk limit level increases, the margin requirement gradually increases, and the available leverage decreases.
2.Where to check risk limit?
While logged in, on the website's trading page, click the rounded icon in the upper right corner to access the information query page.
On the App's trading page, click "..." (in the upper right corner) Preferences - Risk Limit to enter the risk limit page. On this page, you can also adjust the risk limit.
Note：The risk limit for coin-margined contracts is set in the base currency of the contract.
3.How to adjust risk limit?
To adjust the risk limit on the website, click the rounded icon in the upper right corner to enter the settings page. In the Settings page, adjust the risk limit.
On the App's trading page, click "..." (in the upper right corner) Preferences - Risk Limit to enter the risk limit page. On this page, you can also adjust the risk limit.
When adjusting from a lower level to a higher level, you will be restricted by the leverage multiplier limits. If the leverage of your position in the lower level is greater than the maximum allowed in the higher level, you'll need to add more margin.
For example, if you open a position in the level 1 of the BTC/USDT contract at 125x leverage and want to adjust to level 3, which supports a maximum of 75x leverage, the additional margin required = position value * (1/75 - 1/125) = position value * 2/375. If your account doesn't have sufficient funds to cover this amount, you'll receive a notification that the adjustment failed due to insufficient funds.
When adjusting from a higher to a lower level, the position will be constrained by the scale of holdings. If the position value exceeds the upper limit of the lower level, then when lowering the risk limit level, the system will prompt the user to at least reduce the position to the upper limit of corresponding level before lowering the risk limit level.
4.Scenarios affected by risk limit level
Ordering: The amount and available leverage for orders and holdings are determined by the risk limit level. For example, in the BTC forward perpetual contract, if a user is at level 3, the maximum leverage available for placing orders is 50x, and the maximum position size is 1,000,000 USDT.
Liquidation: The user's liquidation price is calculated based on the maintenance margin rate corresponding to the risk limit level. If the user is not at level 1, the position will be partially liquidated to reduce the risk limit level, with the profits or losses from this liquidation directly entering the user's account balance. If the user is at level 1, the position will be directly liquidated and taken over. Partial liquidation is executed using Immediate or Cancel (IOC) orders. If the IOC order cannot be fully filled, the user’s entire position will be liquidated and taken over.
Taking the BTC forward perpetual contract as an example, if you hold a position worth 2,500,000 USDT and you are at level 4, when a liquidation trigger occurs, there will first be a reduction in position to drop to level 3. The value of the reduction is equal to the position value minus the upper limit of the previous level, which is 2,500,000 – 1,000,000 = 1,500,000 USDT. The system will execute a closure of 1,500,000 USDT. After the reduction, the risk limit level drops to level 3, optimizing the maintenance margin rate and returning the position to a normal state.
5.How identity verification level impacts risk limit?
When determining the maximum leverage, if the identity verification level conflicts with the risk limit level, the identity verification level takes precedence. If your identity verification level allows a maximum leverage of 5x and the risk limit based on your current position size allows for up to 125x leverage, your actual maximum leverage you can use is 5x. You have the option to manually adjust your risk limit, but the initial margin rate is always 1 divided by the leverage multiplier. For example, if the current maximum leverage is 5x, then the initial margin rate = 1 / 5 * 100% = 20%. The maintenance margin rate will adjust with changes in the risk limit level.
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