An insurance fund is a reserve set aside by a cryptocurrency exchange or trading platform to protect against losses from liquidations, unexpected events, or other risks. Its primary purpose is to cover deficits that may occur due to forced liquidation ...Read more
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If the insurance fund is depleted, the exchange will force the position of the opposing trader to cover the position of the bankrupt trader, a process called Auto Deleveraging Liquidation.
When liquidation occurs, the liquidation engine automatically unwinds the position. The insurance fund mechanism varies depending on whether the execution price is above or below the bankruptcy price.Execution Price > Bankruptcy Price (For Long position, Short position vice versa):If the ...Read more
Auto-Deleveraging (ADL) Liquidation is a mechanism used to handle the liquidation of positions when there is insufficient liquidity to fulfill all liquidation orders. It is applied in the context of leveraged trading, where traders borrow funds to amplify trading positions. ...Read more
ADL is activated under the following conditions on Flipster:Insurance Fund is Depleted: When the insurance fund balance is $0. Backstop Liquidity Provider cannot take positions: When the backstop liquidity provider is unable to absorb the liquidated positions.Activation Condition Example:Trader A ...Read more
Calculation formulas:Margin:Position Margin = Margin Balance input in the order zone.Position Size:Position Margin = Quantity x Opening Price / Leverage.
Backstop Liquidity Providers (BLPs) are agents incentivized to manage liquidated positions. They help ensure the resilience and stability of financial markets by safeguarding against severe disruptions and promoting orderly trading.
The process involves the following steps:BLPs Take Over Liquidated Positions:If liquidation is triggered, all open orders are immediately canceled. The liquidation engine takes over the user’s entire position. These positions are closed against BLPs at the bankruptcy price plus half of the ...Read more
If the insurance fund is depleted and cannot cover the incentive to BLPs, Flipster will trigger an Auto Deleveraging Liquidation event. This event automatically deleverages opposing trader positions based on their profit and leverage priority to cover the position of ...Read more
Margin trading allows traders to borrow funds to increase their buying power and open larger positions than their initial capital would allow. It involves using leverage to amplify potential gains (or losses) by using borrowed funds.