The liquidation of a position before the collateral reaches zero is an intentional design to ensure the financial stability and integrity of our trading platform. This design is centered around the concept that the liquidation price is determined in a way that maintains enough active collateral to cover the maximum possible fees over a 24-hour period. Therefore, the liquidation threshold is set at a level significantly above zero collateral to safeguard against potential market volatility and ensure there are sufficient funds to cover these fees.
This mechanism ensures that even in extreme market conditions, there is a buffer of collateral left to absorb the impact without endangering the platform or other traders. It’s a preventive measure, taking into account the unpredictable nature of trading markets.
It’s important to understand that this buffer zone, or the distance from zero collateral at which liquidation occurs, accounts for various factors including, but not limited to, the potential accumulation of fees such as the Delta Neutrality Fee (DNF). While the DNF itself does not directly influence the liquidation price, the overall structure is designed to ensure that there are always enough funds in the account to manage the fees incurred over a day, regardless of their nature.
In summary, if your position was liquidated while there appeared to be a significant amount of collateral remaining, it is likely because the system preemptively closed the position to ensure that the maximum possible fees could be covered, maintaining a healthy and secure trading environment for all users. This approach helps protect traders from deeper financial losses and the platform from undue risk.