Forced liquidation is also called forced liquidation, also called being cut or being cut. According to the different subjects of compulsory liquidation, compulsory liquidation can be divided into exchange compulsory liquidation and brokerage compulsory liquidation. Commonly used in spot gold and futures trading.
Forced liquidation is divided into the following categories:
1. Forced liquidation due to failure to fulfill the obligation of additional margin. According to the rules of the exchange, gold trading is subject to a margin system, and each transaction must pay a certain percentage of margin. When the market changes unfavorably, that is, when the market changes reversely, and the delivery month enters, members or customers should also add margin according to the trading rules and the contract. If the member or customer fails to fulfill the obligation of additional margin within the specified time, the trading ownership forces the member or brokerage company to close the position held by the customer.
2. Forced liquidation due to violation of regulations. If a member or customer violates the trading rules of the exchange, the trading ownership will be forced to close the position and violate the trading rules. It mainly includes: exceeding positions in violation of position restrictions; Failing to report or making a false report in violation of the large household reporting system; Handling gold business for those who are prohibited from entering the market; Brokerage companies engage in self-operated business; Manipulate the market together; And other illegal acts that require compulsory liquidation.
3. Forced liquidation due to temporary changes in policies or trading rules. This often happens in previous years, and trading rules are often modified because of the temporary regulations of policies or regulatory authorities, or can not be implemented normally for the time being.
The difference between hedging liquidation and forced liquidation;
Futures contracts used for hedging and liquidation must be the same commodity futures and the same number of contracts. Enterprises complete transactions by selling or buying previously held buying or selling contracts, and liquidation gains and losses occur as an increase or decrease in "futures margin".
In the course of trading, the futures exchange takes compulsory liquidation measures in accordance with the regulations, and the losses arising from liquidation are borne by members or customers. The realized liquidation profit belongs to the futures exchange's forced liquidation due to the violation of members or customers, which is included in the non-operating income of the futures exchange and is not distributed to the violating members or customers; If it is forced to close its position due to changes in national policies, continuous price fluctuations and other reasons, it will be distributed to members or customers.