What is a Risk Protection Fund?
A Risk Protection Fund is a security mechanism designed to protect bankrupt users from adverse losses and ensure that profitable users receive their full profits. Its primary purpose is to limit occurrences of counterparty forced liquidations.
When a counterparty is forcibly liquidated, the positions of the other user are automatically liquidated to cover the bankrupt user's position. In these cases, the profitable positions of the other user, especially those using high leverage, are more likely to face automatic reductions. The Risk Protection Fund uses collateral from non-bankrupt users' fees to cover the bankrupt users' losses (negative balance accounts), addressing the issues mentioned above.
How Does the Risk Protection Fund Operate?
The Risk Protection Fund aims to compensate for losses when a user's account assets fall below zero. Additional fees paid by non-bankrupt users during forced liquidation are injected into the Risk Protection Fund. The primary objective of the Risk Protection Fund is to reduce occurrences of counterparty liquidations.
- If a user experiences a liquidation situation, meaning that after the forced liquidation the account has no remaining funds or cannot be liquidated, BitMart will take over the remaining positions in the user's account.
- In this scenario, BitMart will use the Risk Protection Fund to conduct a reverse liquidation. If the Risk Protection Fund is insufficient to take over the remaining positions of the liquidated user, counterparty automatic liquidation will occur.
The Risk Protection Fund conducts a maximum net nominal position check, ensuring that its nominal value does not exceed a preset maximum position; generally, this is set to 100% of the Risk Protection Fund. Any position exceeding the maximum nominal value will be subject to automatic reduction. The Risk Protection Fund performs reductions based on a preset algorithm. At this point, all situations typically requiring the intervention of the Risk Protection Fund will be converted to counterparty automatic reductions.
In BitMart futures, coin-margined perpetual contracts each have their own Risk Protection Fund account, while USDT-margined perpetual contracts share a single Risk Protection Fund account.
Disclaimer:
Cryptocurrencies are subjected to high market risk and volatility despite high growth potential. Users are strongly advised to do their research and invest at their own risk. BitMart will do its best to list only high-quality coins but will not be responsible for your investment losses.
