FAQs: Risk Limit Level
What is risk limit level?
Risk limit levels are a risk management mechanism that limits the position risk of traders. In volatile markets, traders using high leverage and holding large positions can significantly impact the market when liquidated, thereby posing additional risks to other traders. KuCoin's futures apply risk limit level rules to all users. This means that traders with large positions need more initial margin to hold positions, further controlling risks and protecting other users from additional risks. When a large position is liquidated, a tiered reduction approach is used to minimize market impact.
The risk limit level includes five elements: level, risk limit (position value), maintenance margin rate, minimum initial margin rate, and maximum available leverage. The risk limit level increases with the increase of position value. As the level increases, both the maintenance margin rate and the initial margin rate also step up (i.e., tiered margins). However, the greater the position value, the lower the maximum leverage available.
Let's use BTC/USDT perpetual contract as an example
When the risk limit (position value) is 5,000 USDT, the corresponding level is 1, with a maintenance margin rate of 0.4%, minimum initial margin rate of 0.8%, and a maximum leverage of 125x. When the amount limit reaches 500,000 USDT, the level is 2, with a maintenance margin rate of 0.7%, an initial margin rate of 1.4%, and a maximum leverage of 75x. As the risk limit level increases, the margin requirement gradually increases, and the available leverage decreases.
How to view the risk limit level?
1. While logged in, on the website's trading page, click References Risk Limit in the bottom right corner to access the information query page.
2. After logging in, click here to view.
What is the impact of risk limit level on trading?
It mainly affects order placement and liquidation.
1. Ordering: The amount and available leverage for orders and holdings are determined by the risk limit level. For example, in the BTC forward perpetual contract, if a user is at level 3, the maximum leverage available for placing orders is 50x, and the maximum position size is 1,000,000 USDT.
2. Liquidation: The user's liquidation price is calculated based on the maintenance margin rate corresponding to the risk limit level. If the user is not at level 1, the position will be partially liquidated to reduce the risk limit level, with the profits or losses from this liquidation directly entering the user's account balance. If the user is at level 1, the position will be directly liquidated and taken over. Partial liquidation uses a Fill or Kill (FOK) order. If the FOK order fails, the user's entire position will be liquidated and taken over.
Example:
With a 2,500,000 USDT position in the BTC forward perpetual contract, you're at level 5 with a 4% maintenance margin rate. When a liquidation is triggered, your position will be reduced first. This lowers the position value to the upper limit of level 4, which is 500,000 USDT (2,500,000 - 2,000,000). The system will then close a position worth 500,000 USDT. After this reduction, your risk limit level drops to level 4, and the maintenance margin requirement decreases to 3.4%, bringing your position back to a normal state.
How identity verification level impacts risk limit
When determining the maximum leverage, if the identity verification level conflicts with the risk limit level, the identity verification level takes precedence. If your identity verification level allows a maximum leverage of 5x and the risk limit based on your current position size allows for up to 125x leverage, your actual maximum leverage you can use is 5x. You have the option to manually adjust your risk limit, but the initial margin rate is always 1 divided by the leverage multiplier. For example, if the current maximum leverage is 5x, then the initial margin rate = 1 / 5 * 100% = 20%. The maintenance margin rate will adjust with changes in the risk limit level.
Impact of Raising the Risk Limit on Position
When adjusting from a lower level to a higher level, you will be restricted by the leverage multiplier limits. If the leverage of your position in the lower level is greater than the maximum allowed in the higher level, you'll need to add more margin. For example, if you open a position in the level 1 of the BTC/USDT contract at 125x leverage and want to adjust to level 2, which supports a maximum of 75x leverage, the additional margin required = position value * (1/75 - 1/125) = position value * 2/375. If your account doesn't have sufficient funds to cover this amount, you'll receive a notification that the adjustment failed due to insufficient funds.
Impact of Lowering the Risk Limit on Position
When adjusting from a higher to a lower level, the position will be constrained by the scale of holdings. If the position value exceeds the upper limit of the lower level, then when lowering the risk limit level, the system will prompt the user to at least reduce the position to the upper limit of corresponding level before lowering the risk limit level.
After the position is reduced, how is the position's profit and loss calculated?
Position profit and loss are divided into two parts:
For the part that is automatically reduced, the profit and loss of the position after the transaction is calculated based on the actual transaction price of the reduction. For automatic reduction, the position is closed using a limit order within 5% of the contract's marked price. Additionally, the profit and loss from the reduction is settled into the user's available balance.
The remaining position after reduction is still used to calculate the unrealized PNL based on the mark price.
What impact does a failed FOK (Fill or Kill) order have on the position?
Partial reduction is executed using Fill or Kill (FOK) orders. If the FOK order execution fails, the entire position will be liquidated and taken over. For example, at risk limit level 4, if the FOK order is not successfully executed, the position will be completely taken over and liquidated.
How to adjust the risk limit level?
Website: Click the ⚙️ settings icon in the top right corner of the page and go to "Trading Preferences" - "Risk Limits".
App: Click the "..." settings icon in the top right corner and go to "Trading Preferences" - "Risk Limits".
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