Normal Trading

Say some account A deposits $1m of collateral to buy $5m of BTC futures. They are currently 5x leveraged, and a 20% BTC move away from bankruptcy. They can trade normally.

Account A:‌‌ Position: long $5m, ‌‌Assets: $1m‌‌, Leverage: 5x‌‌, Distance from bankruptcy: 20%.

Orderly Liquidation

Now say that BTC drops 11%. A has dropped below Initial Margin Fraction(10%) and can no longer send orders.

Account A: Position: long $5m, ‌‌Assets: $450k, ‌‌Leverage:11x‌‌, Distance from bankruptcy: 9%.‌‌ Cannot Send Orders

Now say that BTC drops another 5.5%, or 16.5% total. Account A has dropped below Maintenance Margin Fraction (4%). Liquidation orders are being sent to the market to sell account A’s BTC futures.

Account A: Position: long $5m, ‌‌Assets: $175k‌‌, Leverage: 29x‌‌, Distance from bankruptcy:3.5%. ‌‌Liquidation Orders Sent

Now say BTC drops another 2%, or 18.5% total. Account A has dropped below Auto Close Margin Fraction (2%). The account’s entire position and balances are being sold to the Backstop Liquidity Providers and Insurance Fund.

Account A: Position: long $5m, ‌‌Assets: $75k, ‌‌Leverage: 67x‌‌, Distance from bankruptcy:1.5%. ‌‌Auto Closing Against Backstops

Price Gap

Finally, say that instead of the above, BTC gaps down 20.5% total, fast enough that FTX has not liquidated any of its position yet. Account A is now beyond bankrupt.

Account A: Position: long $5m, ‌‌Assets: -$25K‌‌, Leverage: N/A‌‌, Distance from bankruptcy: -0.5%.‌‌ Auto Closing Against Backstops‌‌ Insurance Fund Paying Out