Risk Statement about Forced Liquidation

Formax Forced Liquidation Ratio: 100%

Formax initiates margin call but not forced liquidation when advance payment (margin) ratio reaches 150% and the biggest loss order has triggered warning. When advance payment ratio drops below 100%, the system will start to liquidate from the biggest loss order to the smallest. Should be noticed that all the orders won’t be liquidated at the same time, but one by one. Liquidation will stop when margin ratio is back above 100%, and restart when margin ratio fells below 100% again.

Forced Liquidation formula:

Advance Payment Ratio = Net Worth/ Used Advance Payment x 100%

For example:

If an account has $10,000 net worth and 100 times leverage, holding 1 standard lot USD/CAD, required margin should be calculated as following:
= 10,000 / 1,000(used margin) x 100%
= 1000% (margin level)
If account net worth falls to $8000 because of market movement.
= 8,000 / 1,000 x 100%
= 800% (margin level)
If account net worth keeps falling to $900, the system will start forced liquidation, as current margin level is 90%, lower than required 100%.
= 900 / 1,000 x 100%
= 90% (margin level)

In what condition will negative balance occur?

In STP platform, every order is clinched by real liquidity provider. When risky event and major data come, slippage often appears because of price gap and spread widening. Therefore, clients’ orders would be clinched at higher or lower price instead of the original one due to price sharp fluctuation. In this case margin level would fall below 100% sometimes, and even result in a negative balance.
Orders are clinched by real liquidity provider after you place unwind order in STP platform, therefore negative balance may occur because of market sharp movement caused loss account.

How will Formax deal with negative balance?

1.Formax will require the client who has negative balance to restore margin to required level.
2.If the client has balance in his copy trade account, Formax will transfer the balance to replenish the negative part in trading account.

As the platform provider, Formax will be required to settle the negative balance when liquidity provider conducts liquidation. Then Formax will need to recover this part by its own funds, and become the creditor of the client. Formax owns the right to require clients to replenish negative balance.

How to avoid negative balance?

Reduce position holding, especially before risky events and weekends, to avoid forced liquidation and negative balance that may be caused by instant market movements.