Insurance Fund
The insurance fund is a reserve mechanism designed to protect the AZX market from losses that exceed an individual trader’s margin during liquidation events.
Purpose of the Insurance Fund
The insurance fund serves to:
Absorb liquidation shortfalls
Protect profitable traders from bearing others’ losses
Reduce the likelihood of Auto-Deleveraging (ADL)
How the Insurance Fund Is Used
When a position is liquidated, the system attempts to close it at or better than the bankruptcy price.
If the execution price is better than the bankruptcy price, the remaining margin is added to the insurance fund.
If the execution price is worse than the bankruptcy price, the insurance fund covers the deficit.
Bankruptcy Price
The bankruptcy price is the price level at which a trader’s entire initial margin is fully depleted.
At this price:
The trader’s margin balance becomes zero
The position can no longer absorb losses
Any further loss must be absorbed by the insurance fund or ADL
Insurance Fund Depletion
During extreme market conditions, multiple large liquidations may occur simultaneously.
If losses exceed the available insurance fund balance:
The fund may be depleted beyond a predefined threshold
The system escalates to Auto-Deleveraging to preserve solvency
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