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Forced liquidation means that when the trading margin of members or customers of a futures exchange is insufficient and not replenished within the specified time, or when the positions of members or customers exceed the specified limit, or when members or customers violate the rules, the exchange implements forced liquidation to prevent the risk from further expanding. The compulsory liquidation system is a risk management system that cooperates with the position limit system and the price limit system. When the trading margin of exchange members or customers is insufficient and not replenished within the specified time, or when the positions of members or customers exceed the specified limit, or when members or customers violate the rules, the exchange will forcibly close the open positions held by them in order to prevent the risk from further expanding. This is the compulsory closing system.
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There are many reasons for compulsory liquidation in futures trading, such as customers' failure to add trading margin in time, violation of trading position restrictions and other irregularities, temporary changes in policies or trading rules, etc. In the standardized futures market, it is most common that customers are forced to close their positions because of insufficient trading margin. Specifically, it refers to the behavior that a futures company forcibly closes some or all of its customers' positions in order to avoid losses. When the trading margin required by the customer's position contract is insufficient, the futures company fails to add the corresponding margin in time according to the futures company's notice or actively reduce the position, and the market situation is still developing in an unfavorable direction, the obtained funds are used to fill the margin gap.
When the balance of the settlement reserve fund of a member is less than zero, there are three kinds of compulsory liquidation that are not replenished within the specified time:
First, when only the proprietary account defaults, the proprietary account shall be closed in the order of the total contract positions. If the settlement reserve is still less than zero after the forced liquidation, the investors in their agency accounts will be moved;
Second, when only the brokerage account defaults, it will be compensated by the balance of settlement reserve and the liquidation amount of the self-operated account, and then the position in the brokerage account will be leveled according to certain principles;
Third, when both the proprietary account and the brokerage account default, the order of forced liquidation is proprietary account first, then brokerage account. If the settlement reserve is greater than zero after forcibly closing the brokerage account position, investors will be passive.
Forced liquidation when the position exceeds the position limit: when this happens to only one member, close the position in the self-operated account first, and then close the position in the brokerage account. The positions held in the brokerage account shall be determined according to the ratio of the number of members who exceed the positions to the positions held by members. When there are multiple members in this situation, the member with a large backlog of positions is preferred as the object of forced liquidation. In addition, to analyze the reasons for forced liquidation, investors can log in to Fuhui Global Jinhui to understand. Investors overstock, forcibly liquidate their positions; If an investor holds positions in multiple members, the member shall be selected for compulsory liquidation according to the order of the number of positions from large to small. If both members and investors exceed positions at the same time, the investors who exceed positions shall be closed first, and then the positions shall be closed according to the method of members exceeding positions.
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