Liquidation and Insurance Fund
Liquidation is an event that occur when the trader’s position is close forcibly by the cryptocurrency exchange due to the trader losing money.
Margin Trading
Margin Trading is a type of trading that involved using third party funds (crypto exchange) to leverage the investment. There are two types of positions, long and short.
An example: John opens a long position of 100 dollars with the leverage of 10x, if the price rose by 1 percent, then John will receive a profit equal to 10 dollars. If John made an exactly the same position without any leverage, John would earn only 1 dollars.
Liquidation in BTCC
If John open 0.01 lot of BTC/USDT in BTCC platform, with 100 USDT as a maintenance margin and 400 USDT in the available balance. If the transaction is losing, it will first deduct 400 USDT in the available balance, then deduct 70% of its 100 USDT maintenance margin. The liquidation occurs when the maintenance margin is below 30% (30 USDT), and after deducting the fee, the remaining balance will be sends to the user account.
What is an insurance fund?
Insurance fund is a guarantee system that aim to protect trader from losses and ensure that other traders will get their profits. Insurance fund use auto-deleveraging (ADL) to liquidate trader’s position automatically to cover the position of the bankrupt trader.
In the futures markets, it is not unusual that traders who hold a profitable position will lose money due to there simply aren’t enough losses on one side to pay for profit on the other side. it is called socialized losses and such case will make the whole crypto trading community loss. This is why exchange get insurance to avoid such extreme scenario.
What separate BTCC from others is that BTCC has deployed a zero clawback rate, and BTCC will cover user’s negative balance rather than let all profiting users share the losses, with around 200,000 USDT being afforded by BTCC each month.
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