How Does an Exchange’s Liquidation Fee Structure Work?
An exchange's liquidation fee structure typically involves a small percentage fee charged on the notional value of the liquidated position. This fee is often split: a portion goes to the exchange's revenue, and the remaining portion is contributed to the insurance fund.
The fee incentivizes traders to manage their risk and close positions manually before liquidation occurs. The fee rate may vary based on the margin tier and the contract type.
Glossar
Liquidation Fee
Mechanism ⎊ A liquidation fee, within cryptocurrency derivatives and options trading, represents a cost incurred when a leveraged position is forcibly closed by an exchange due to insufficient margin maintenance.
Liquidation Fee Structure
Solvency ⎊ The fee assessed during a forced liquidation is a critical component of the exchange's risk management framework, designed to absorb potential losses from market slippage when closing an under-margined position.