The so-called forced liquidation refers to the forced liquidation of the position of the holder by a third person other than the holder (such as a futures exchange or futures company), also known as being liquidated or being liquidated. There are many reasons for compulsory liquidation in futures trading, including 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, the most common phenomenon is forced liquidation due to insufficient trading margin of customers, that is, when the position margin required by the customer's position contract is insufficient, and the customer fails to add the corresponding margin in time or take the initiative to reduce the position according to the notice of the futures company, and the market situation is still developing in the direction of unfavorable positions, the futures company forcibly closes part or all of the customer's positions to fill the margin gap, so as to avoid the risk spread caused by the expansion of losses. Most investors in the stock market can't understand that futures companies have to close their positions without customers' consent, because the leverage of futures is not clear. As mentioned above, the calculation formula of strong flat deposit is:
Strong margin = position margin × (exchange margin ratio/futures company margin ratio)
Position margin = dynamic price of stock index futures × contract multiplier × number of buyers and sellers × margin ratio
Position risk rate = (customer's equity/position margin) × 100(%)
It can be seen that the proportional relationship between the strong flat margin and the position margin changes with the exchange margin ratio. I have encountered such a case. At one time, the margin ratio charged by the exchange was 5%. The author did not explain the specific calculation formula and concept of the forced liquidation point to the customer, but directly told the customer that when the risk rate of its position dropped to about 70%, the futures company would force liquidation. The 70% here is the approximate value determined by the proportional coefficient 0.7 143 between the strong margin and the position margin under the condition that the exchange margin is 5% and the futures company adds 2%.
Later, the fluctuation of commodity futures increased and the risk increased sharply. The exchange raised the margin ratio to 7%. At this time, the proportional coefficient of strong margin and position margin becomes 0.07/0.09=0.7778. In this way, when the customer's risk rate drops to 77.78%, we have to force the liquidation, and the customer insists, "Didn't you say that the risk rate is as strong as 70%?" Now it's 77%, and there are 7 percentage points left. "The result is to spend a lot of effort to explain the true meaning and calculation formula of the forced liquidation point to customers. Although strong leveling was finally implemented, customers complained a lot, which caused unnecessary tension between futures companies and customers. It can be seen that it is not appropriate to simply tell customers what level the risk rate will drop to. Only by letting customers know the calculation method of the risk rate that triggers the forced liquidation point can we resolve this risk and enable customers to control the position risk reasonably.