What is Insurance Fund?


AAX sets the liquidation price a fraction above the Bankruptcy Price (in the case of Longs) or a fraction below the Bankruptcy Price (Shorts) to prevent traders from going bankrupt, and this is achieved by having an Insurance Fund.

Using the same example mentioned above, bankruptcy price is $99.00 since the maintenance margin is $1. However in a weak market, the value of asset can drop below the bankruptcy price, in this case, the Insurance Fund will pick up the loss. If the liquidation order is filled at $98.90, the price risk of liquidation is taken up by AAX insurance fund, meaning the insurance fund will take up the loss of $0.10.

The above example demonstrates in principle how AAX handles liquidation, actual figures on marked price, liquidation price and bankruptcy price is subjected to the investment strategy of individuals.

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