Will the DigiFinex perpetual contract liquidate?

Will the DigiFinex perpetual contract liquidate?

A perpetual contract is a type of futures contract that does not have an expiry date. This means that traders can keep their positions open for as long as they want. However, if the market moves against them, they may be forced to liquidate their position to avoid losing more money.

There are a number of factors that can trigger a liquidation, including:

• A margin call: This occurs when the trader's margin balance falls below a certain level, and the contract rules adhere to the global margin calls.
• A stop-loss order: This is an order that is placed to automatically sell a contract if it reaches a certain price.
• A forced liquidation: This occurs when the exchange forcibly closes a contract due to extreme market conditions or if the exchange follows the rules that it has set.

If the trader's margin balance falls below the maintenance margin in DigiFinex, which is currently set at 1%, a margin call will be triggered, and the trader may be forced to liquidate their losses. Margin calls often occur when the prices of a given market suddenly drop, reducing unrealized PnL. When the trader's unrealized PnL is equal to the initial margin posted, a margin call will be triggered.

In the event of a margin call, the trader may choose to meet the margin requirement in order to avoid liquidation.

• Adding more funds: The trader can add more funds to their margin account and adjust leverage. This will increase their margin balance and keep the position open.
• Reduce position size: The trader can reduce their position size, which will also increase their margin balance. They can do this by selling a portion of their position and placing a stop-loss order on the remaining portion (the stop-loss order may not prevent liquidation if there is a rapid or sustained drop in the underlying asset). A stop-loss order is an order to sell a contract at a specific price. If the market price reaches the stop-loss price, the contract will be sold automatically. This can help to limit the trader's losses if the market moves against them.
• Close the position: The trader can also choose to close their position, which will result in a realized loss. This is the most drastic option, but it can also be the most effective way to prevent further losses.

Ultimately, the decision whether or not to liquidate a position is up to the trader. However, it is important to understand the risks involved and to have a plan in place in the event of a margin call or contrary market action.