Insurance Fund
If a forced liquidation cannot be executed at a price better than the bankruptcy price, the insurance fund is used to cover these losses, thereby reducing the likelihood of auto deleverage.
The increase in the insurance fund balance comes from the surplus amount after all taken-over liquidated positions are executed in the market at a price better than the bankruptcy price.
For example, a trader holds a long position of 1000 contracts (1 BTC) in XBTUSDTM, with a position margin of 1000 USDT, an entry price of 40,000, a leverage of 40x, and a corresponding maintenance margin rate of 0.4%.
The forced liquidation price is calculated as: 40000 * [1 - (2.5% - 0.4%)] = 39160.
The bankruptcy price is calculated as: 40000 * (1 - 2.5%) = 39000.
When the mark price drops to 39160, the position triggers forced liquidation.
When the position is closed at any price above 39000, if it's closed at 39,100, the remaining margin will be added to the insurance fund.
When the position is closed at a price below 39000 USD, for example at 38850 USD, and the actual loss after forced liquidation is 150 USDT, the loss arising from negative balance is 150 USDT (actual loss - position margin). This loss of 150 USDT will be compensated from the insurance fund.
Traders can view the current balance and history in the insurance fund.
Note: In the futures market, since each contract has its distinct risks and impact on the insurance fund, the insurance fund balance is displayed in an aggregated way according to the settlement currency, but the insurance fund of contract is allocated independently.
KuCoin Futures reserves the final right to interpret the product.
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