What is Bitget Insurance fund?
Bitget uses an insurance fund to decrease the possibility of Auto-Deleveraging. The insurance fund is a key part of any exchange that allows leveraged trading. It plays a large role in cryptocurrency derivatives exchanges, both centralized and decentralized. An exchange with a healthy insurance fund means traders can expect a smooth trading experience, even when markets are illiquid or experiencing extreme volatility.
The insurance fund is an additional mechanism that helps preventing traders to have a profitable position being forcibly closed in the event of large liquidations. In that sense, the insurance fund can be seen as a fund that acts as the first line of defense against contract loss.
How exactly does the Insurance Fund work?
Whenever a position is being closed forcefully, there are two importan t price mechanics involved, namely the bankruptcy price and the liquidation price (final executed price of that liquidated position). The balance of the insurance fund will increase or decrease depending on the price difference between those two mechanics.
When liquidations are executed at a better price than the bankruptcy price, the remaining margin will be added to the insurance fund.
When liquidations are executed at a price worse than the bankruptcy price, the losses will be covered by the insurance fund.
How do I know what the balance of the Insurance fund is?
Traders can always refer to the balance of the insurance fund by clicking on the following meny options. Futures -> Futures info -> Provision of risks, or by clicking on the following link: https://www.bitget.com/mix/introduction/riskFoundation?code=BTCUSDT_UMCBL
What happens if the insurance fund is depleted?
If the insurance fund is insufficient to cover the gap between bankruptcy and executed liquidation price, then the contract losses will be taken over by the ADL system and absorbed by the traders on the platform in a tier-like manner.
So if for example, the insurance fund has 100.000 USDT, but a singular contract loss amounts to 120.000 USDT, the entire contract loss will be taken over by the ADL mechanism.
If the insurance fund has 100.000 USDT, and if the following three orders by the size of 80.000, 20.000 and 30.000 USDT are liquidated in chronological matter, then the position with 30.000 USDT will be absorbed by the top-tier PNL/Margin traders through the automated ADL system.
The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.
All opinions expressed on Bitget’s Soapbox (also known as the ‘Soapbox’) are opinions of individual traders using the Bitget platform, and do not reflect the opinions of Bitget or its affiliate companies and partners. The Soapbox author’s opinions are based upon information they confirm to be reliable, but neither Bitget nor its affiliates warrant its complete accuracy, and it should not be relied upon as such.
- Bitget x TraderCobb: Crypto Trading Made FriendlierKOLs2023-03-01 | 5 minutes
- 3 Things Losing Trades Can Teach YouKOLs2022-11-28 | 5 minutes
- Funding: Deep DiveKOLs2022-11-24 | 5 minutes