Insurance Fund and Mechanism
Insurance Fund
Hibt adopts a standalone position model and charges fees within the price. Traders who are forcibly liquidated will not lose more than the margin in their contract account. When forced liquidation is triggered, the position will be settled at the latest index price on the platform. If the loss exceeds the margin amount in the contract account, the insurance fund will draw an amount to cover the difference. If the insurance fund does not have enough balance to bear the liquidation loss, the auto-deleverage system will take over the liquidation process.
Three Situations Regarding Liquidation Positions and Insurance Fund
- If the liquidation position can be closed at a price better than the bankruptcy price: The remaining margin for the user will be added to the insurance fund.
- If the liquidation position cannot be closed at a price better than the bankruptcy price: The insurance fund will be used to cover the liquidation loss.
- If the balance of the insurance fund is insufficient to cover the liquidation loss: This will trigger the auto-deleverage mechanism.
Note: Hibt uses the insurance fund to prevent the automatic liquidation of positions held by other traders.
Mechanism of the Insurance Fund
During the liquidation process, the balance of the insurance fund will increase or decrease, depending on the price difference between the final execution price of the relevant liquidation position and the bankruptcy price.
- When a position can be liquidated in the market at a price better than the bankruptcy price, the remaining margin will be added to the insurance fund.
- Conversely, if the final execution price of the liquidation position is lower than the bankruptcy price, the loss of the contract will be covered by the insurance fund.
For example:
A trader holds a long position in BTCUSDT, with a liquidation price of 7,000 USDT and a bankruptcy price of 6,950 USDT. Once the mark price reaches 7,000 USDT, it will trigger the forced liquidation of that position.
- If this position can be closed at any price above 6,950 USDT, such as 6,980 USDT, the excess margin will be added to the insurance fund.
- Conversely, if the liquidation execution price is below 6,950 USDT, such as 6,930 USDT, the insurance fund will be used to cover the liquidation loss.
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