The Insurance Fund

The Insurance Fund is a risk management mechanism used by Hotcoin to help cover negative equity losses during extreme market conditions.

During the liquidation process, if a position cannot be liquidated above the bankruptcy price, the Insurance Fund may be used to absorb the related losses, helping reduce market risk and maintain trading stability.

In general, the liquidation price is the price at which the system triggers forced liquidation, while the bankruptcy price refers to the price at which the position margin is theoretically fully depleted.

The following examples use a long position liquidation scenario.

When the Liquidation Execution Price Is Above the Bankruptcy Price

If a position is ultimately liquidated at a price above the bankruptcy price, the remaining margin will usually be added to the Insurance Fund.

For example:

• Liquidation Price: 48,000 USDT
• Bankruptcy Price: 47,950 USDT
• Actual Liquidation Execution Price: 47,980 USDT

Since the actual execution price is above the bankruptcy price, the remaining margin will be added to the Insurance Fund.

When the Liquidation Execution Price Falls Below the Bankruptcy Price

During periods of extreme market volatility, the actual liquidation execution price may fall below the bankruptcy price. In such cases, the related negative equity losses may be covered by the Insurance Fund.

For example:

• Liquidation Price: 48,000 USDT
• Bankruptcy Price: 47,950 USDT
• Actual Liquidation Execution Price: 47,930 USDT

Since the actual execution price falls below the bankruptcy price, the Insurance Fund may be used to cover the corresponding negative equity losses.

Insurance Fund accounts for different contracts are generally managed independently, and additional funds may be injected based on platform risk management needs.