Contract Risk Insurance Fund
To protect the interests of both traders and the platform, and to shield traders from losses caused by bankrupt positions, BitDa has established an insurance fund. This fund ensures smooth position settlement during forced liquidation, preventing activation of the Automatic Deductions (ADL) mechanism when losses exceed margin.
Role of the Insurance Fund
The process of forced liquidation triggers the involvement of the insurance fund. When the market is highly volatile, positions may fail to be liquidated at a reasonable price, causing prices to break below the bankruptcy price. In such cases, the insurance fund will be activated immediately to cover the loss, ensuring that traders do not have to bear any additional losses beyond the margin.
Furthermore, if the liquidation price is better than the bankruptcy price, the surplus will also be injected into the insurance fund.
Sources of Insurance Fund
Trading Fees:The platform allocates a portion of contract trading fees to the risk protection fund.
Bankruptcy Liquidation Surplus: Excess funds from liquidated bankrupt positions (after covering losses) are transferred to the risk protection fund.
Platform Contributions: BitDa may directly inject capital to maintain fund adequacy in special cases.
Operation of the Insurance Fund
Bankruptcy Liquidation Process
When a user’s position is liquidated, BitDa will first attempt to transfer the position to other traders in the market through the liquidation mechanism.
If market liquidity is insufficient or if there is significant price volatility, the funds obtained from liquidation may not be enough to cover the loss.
Use of the Fund
The risk protection fund will be used to cover any losses that could not be fully liquidated.
Risk Sharing
If there are sufficient funds in the reserve, profitable users will not be forced to share the losses of others due to bankruptcy.