Gate Contract Trading's Core Security Double Wings: Detailed Explanation of the Tiered Liquidation Mechanism and Risk Guarantee Fund

High leverage contract trading offers the potential for substantial returns but also comes with corresponding high risks. As a leading global digital asset trading platform, Gate understands that risk management is the cornerstone of trading.

By introducing a tiered liquidation mechanism and establishing a risk protection fund, Gate has built a multi-layered risk management system that operates efficiently while safeguarding users’ funds, providing a more reliable safety net for contract traders.

Understanding the Risks and Challenges of Contract Trading

Cryptocurrency contract trading, with its high leverage features, attracts many investors seeking high returns. Similar to traditional financial derivatives, this type of trading allows investors to control larger positions with less margin, amplifying potential gains.

However, this leverage effect is a double-edged sword. During market volatility, losses can be rapidly magnified. Market data shows that in extreme conditions, the price fluctuations of certain contract products can exceed 30% within 24 hours, posing significant risks for high-leverage positions.

The Gate platform supports various margin modes, including isolated margin and cross margin, allowing users to choose based on their risk preferences.

Regardless of the mode selected, understanding and effectively managing liquidation risk is a core skill every contract trader must master. This is also the fundamental reason why Gate invests heavily in developing advanced risk management tools.

Tiered Liquidation Mechanism: Say Goodbye to One-Time Liquidation

In traditional contract trading systems, when margin is insufficient to maintain a position, a full liquidation is often triggered. This “all-or-nothing” approach can cause users to lose all their positions during sharp market swings, and even incur negative balances due to slippage.

Gate’s tiered liquidation mechanism changes this situation entirely. It uses a layered system of maintenance margin rates. When a user’s account risk level rises, it does not trigger an immediate full liquidation.

The system will prioritize partial liquidation of the user’s positions, gradually reducing leverage and easing margin pressure. This means users have the opportunity, after partial liquidation, to add margin, adjust their positions, or hold onto the remaining positions based on market conditions.

More importantly, Gate’s liquidation price calculation uses an advanced marking price mechanism instead of simple real-time trading prices. The marking price is based on the spot index price and premium index, representing a fair price in the contract market. It effectively filters out short-term market anomalies, avoiding unnecessary liquidations caused by brief price spikes.

Risk Protection Fund: Responding to Extreme Market Shocks

In addition to the tiered liquidation mechanism, Gate has established a dedicated risk protection fund as a last line of defense against extreme market conditions. The fund mainly comes from a portion of the platform’s profits and is used to cover potential user losses during extreme market events.

When the market experiences extreme volatility that causes the insurance fund to be insufficient to cover liquidation losses, Gate’s risk protection fund will activate, providing an additional layer of protection for users. This mechanism ensures that even under unusual market conditions, user losses can be effectively controlled.

The operation of the risk protection fund is highly transparent. Users can monitor the fund’s status and size in real-time through tools provided by the platform. This transparency not only enhances user trust in the platform but also demonstrates Gate’s serious commitment to risk management.

Auto-Reduction Mechanism: The Platform’s Overall Balancer

In extreme market conditions or under force majeure, when the insurance fund is insufficient, Gate also has an automatic position reduction mechanism as a supplementary measure. This mechanism considers multiple factors such as user account risk, position risk, and yield rate, selectively reducing positions on the profit side.

The automatic position reduction process on the Gate platform is also highly transparent. Users can monitor their position risks in real-time using the platform’s auto-reduction indicators.

When a position is selected for reduction, the platform will notify the user through this indicator. Users can adjust their positions or lower leverage promptly based on the prompt, effectively managing their own risks.

Comprehensive Risk Management: Building a Safe Trading Environment

Gate’s risk management advantages are not limited to individual mechanisms but are reflected in its comprehensive, multi-layered risk management system, covering liquidation mechanisms, risk limits, margin systems, and automatic position reduction.

These measures work together to form an integrated whole, effectively responding to complex and volatile market conditions, ensuring the safety of platform and user trading. Whether a beginner or an experienced trader, everyone can find suitable risk protection within this system.

The platform also has a professional risk management team composed of experienced financial and technical experts. They monitor market dynamics in real-time, adjust risk control strategies promptly, and provide a solid guarantee for the platform’s stable operation.

User Guide: How to Trade Safely on Gate

For users wishing to trade contracts on Gate, understanding and properly utilizing these risk management tools is crucial. Here are some practical tips:

Start with low leverage to familiarize yourself with the platform’s features rather than chasing high returns. Begin with the isolated margin mode to clearly define the risk boundaries of each trade.

Set stop-loss points for every trade to avoid relying solely on on-the-spot judgment. Always monitor the liquidation price changes, not just short-term profit and loss.

Use Gate’s marking price monitoring feature to distinguish between genuine market trends and short-term fluctuations. Regularly check the status of the risk protection fund to understand the platform’s overall risk resilience.

Future Outlook

When Bitcoin’s price sharply dropped from $68,000 to $60,000, a Gate contract trader was surprised to find that his position did not get liquidated instantly as it did on other platforms.

After the tiered liquidation mechanism was triggered, only part of his position was liquidated. The remaining position started to profit when the price rebounded to $65,000. Meanwhile, the balance of Gate’s risk protection fund quietly increased by 3.2%, preparing to buffer the next market fluctuation.