What is liquidation protection in Funding Farming?

Liquidation protection in MagicTradeBot is a safety mechanism designed to protect your capital when using Funding Farming. Since the strategy involves hedged Spot + Futures positions, the bot continuously monitors the Futures position’s proximity to liquidation.

🔹 How It Works

  1. Monitor Futures Risk

  2. The bot tracks the distance between the current Futures price and the liquidation price

  3. Liquidation occurs when margin requirements are breached, potentially causing a full loss of the leveraged position

  4. Emergency Close Trigger

  5. If the price moves too close to the liquidation threshold, defined by liquidation_percent, the bot automatically closes both Spot and Futures positions

  6. Example:

    • liquidation_percent: 5 → positions are closed when within 5% of liquidation price

  7. Capital Preservation

  8. By closing positions before liquidation, the bot prevents forced liquidations

  9. Ensures you retain your Spot holdings and part of your Futures capital

🔹 Key Benefits

Feature Benefit
Early liquidation monitoring Reduces risk of catastrophic loss
Automatic closure of both positions Maintains hedge integrity and preserves capital
Configurable threshold (liquidation_percent) Allows tuning based on risk tolerance and exchange leverage

🔹 Practical Example

  • BTC Futures liquidation price: $50,000
  • Current price approaches $52,500
  • liquidation_percent = 5 → 5% above liquidation
  • MagicTradeBot closes both Spot and Futures trades automatically
  • Result: Capital is preserved, and hedge positions are safely exited

✅ Key Takeaways

  • Liquidation protection safeguards your funding farming positions
  • Bot monitors Futures liquidation proximity in real-time
  • Positions are automatically closed if the threshold is reached
  • Essential for capital preservation in leveraged hedged trades

📎 Related Topics