▶ Insurance fund:
Insurance funds are pools of funds set up by WOO X to cover losses that may occur due to unexpected events, such as liquidations in futures trading. It acts as a defense against contract loss in leveraged trading and is used to pay the traders in the event of liquidations who fail to take measures in time to prevent their open positions from going bankrupt. The insurance fund is funded through liquidation fees and WOO X contribution.
At WOO X, we have set up separate insurance funds for:
- BTC and ETH perpetual contracts that offer 50x leverage.
- Other perpetual contracts with the maximum leverage of 20x or lower.
We are aiming to provide a diversified, stable and flexible insurance fund system that supports all perpetual contracts.
Insurance funds will cover the loss when a position's liquidation price goes lower than the bankruptcy price as well as the liquidation fee when traders’ margin cannot cover the minimum liquidation fee.
The insurance fund is considered depleted when its balance has dropped 30% from peak within 8 hours or is below 0.
▶ Liquidation:
The account will get liquidated when the margin ratio in your account falls below the maintenance margin ratio (MMR). The default margin ratio is 1,000%, indicating you haven’t opened any position.
The larger the position, the higher the MMR you will need to uphold. Traders are advised to pay close attention to the movements of the mark price and the liquidation price to avoid being liquidated.
Once your account triggers the liquidation engine, it will be locked during liquidation. You will not be able to place/modify/cancel your order and the withdrawal function will be temporarily disabled. The liquidation process will stop if the margin ratio is larger than your account MMR. The liquidation engine will carefully close positions to minimize the impact on the market. WOO X utilizes Backstop Liquidity Providers (BLP), our dedicated liquidity providers, to process liquidated positions that are near their bankruptcy price along with a four-phase liquidation process for all scenarios with various trigger points. Detailed calculations for these triggers can be found in our Margin and Leverage article.
PHASE 1
Trigger 1: Base maintenance margin ≤ Total collateral﹤ Maintenance margin
Actions: All pending orders will be canceled, including spot and futures orders.
If your position notional is larger than the threshold, the system will automatically reduce/settle the extra position of a specific pair directly to the market. (What is the threshold in futures? -> IMR Factor and Threshold). A trading fee of 0.1% will be charged and collected by the insurance fund.
Trigger 2: Auto-close maintenance margin ≤ Total collateral﹤ Base maintenance margin
Actions: All pending orders will be canceled, including spot and futures orders.
The system will off-load 20% of each futures position to the market (if the position is ﹤ 2,000 USDT, the entire position will be closed). A trading fee of 0.1% will be charged and collected by the insurance fund.
PHASE 2:
Trigger: Total collateral﹤ Auto-close maintenance margin
Actions: Auto-convert non-USDT collateral to USDT until all collateral is in USDT or Total collateral ≥ Auto-close maintenance margin, whichever comes first. A trading fee of 0.1% will be charged.
PHASE 3:
Trigger 1: 50% * Auto-close maintenance margin ≤ Total collateral﹤ Auto-close maintenance margin
Actions: All pending orders will be canceled, including spot and futures orders.
Reduce additional positions at bankruptcy price against BLP. Excess margin will be split half and half between BLP and the insurance fund.
Trigger 2: 25% * Auto-close maintenance margin ≤ Total collateral﹤ 50% * Auto-close maintenance margin
Actions: All pending orders will be canceled, including spot and futures orders.
Reduce additional positions at bankruptcy price against BLP. A minimum liquidation fee of 25% * Auto-close maintenance margin will be paid out to BLP while the remaining margin will be collected by the insurance fund.
Trigger 3: Total collateral ≤ 25% * Auto-close maintenance margin
Actions: All pending orders will be canceled, including spot and futures orders.
Reduce the remaining positions at bankruptcy price against BLP. Insurance fund will be paid out to BLP with a minimum liquidation fee of 25% * Auto-close maintenance margin.
PHASE 4:
Trigger: Insurance fund depleted or BLP is incapable of processing liquidated positions
Actions: ADL systems automatically deleverages opposing traders' positions by profit and leverage priority, represented by the ADL indicator in the Portfolio tab and in the order history. The ADL indicator shows your position in the auto-deleverage queue. The more lights that are lit, the more likely your positions will be reduced in the event of liquidations.
During ADL, trading will be suspended for that symbol. Deleveraging priority is calculated by profit and leverage. No additional trading fees will be incurred during the ADL process.