What is the risk limit?
Risk limits are an important risk management tool designed to reduce potential risks from market fluctuations by setting an upper limit on the user’s position quantity. In futures trading, risk limits can effectively prevent market price volatility caused by large-scale liquidation. Users can set Contract Information Check the risk limit related information for the corresponding trading pair.
Explanation of Parameters in Risk Limit
The risk limit is composed of several key parameters, each of which plays a different role in risk management:
- Base risk limit: This is the initial maximum position that users can hold in the futures market. Once this limit is exceeded, the maintenance margin level and initial margin level will start to increase.
- Maintenance Margin Rate This is the minimum margin level required by the exchange to complete liquidation. The lower the margin level, the more difficult it is for the exchange to complete the liquidation, especially in cases of insufficient market liquidity.
- Initial Margin Level This is the minimum margin amount that users need to pay when entering a position. As the risk limit increases, the initial margin level will also increase accordingly.
The role of risk limits
The main function of risk limits is to protect market liquidity and prevent market fluctuations caused by large liquidations. In extreme market conditions, high holdings may result in huge losses, which could have a negative impact on the entire market. By setting risk limits, the system can adjust users’ margin requirements in a timely manner to reduce potential risks.
How to adjust risk limits?
Users can increase the risk limit according to their needs, but please note that increasing the risk limit will directly affect the increase in the maintenance margin level and initial margin level, resulting in a reduction in the maximum leverage ratio.
Example: BTCUSDT Risk Limit
Taking BTCUSDT as an example, the basic risk limit is 1,000,000 USDT, and the maximum risk limit is 1,500,000,000 USDT. With the increase in risk limits, the maintenance margin level and initial margin level will also increase accordingly. In this example, when the risk limit of BTCUSDT increases to 1,200,000 USDT, the maintenance margin level increases to 1%, and the initial margin level increases to 2%, thus reducing the maximum leverage from 125x to 50x.
Precautions
- Risk limit adjustments cannot exceed the maximum set value (such as 1,500,000,000 USDT in this example).
- After the risk limit adjustment, the maximum leverage ratio will change accordingly
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