15. Venture funds

Dear Dcoin users:

This article mainly describes some common basic questions about venture funds, such as the role of venture funds, the principles of venture funds, and the rules of using venture funds.

What is a venture fund
The risk fund is used to prevent traders' positions from being automatically reduced. The fund is used to improve the price of unexecuted liquidation orders and make up for the loss of liquidation to avoid being taken over by the automatic lightening system. The increase in the amount of the risk base comes from the liquidation commission in the market at a price better than the bankruptcy price.

The role of venture funds
Dcoin uses risk funds and the automatic lightening system (ADL) to handle the situation of liquidation. The role of the risk fund is to avoid the occurrence of automatic lightening.
In margin trading, when the margin level of a position is lower than the maintenance margin, a forced liquidation will be triggered. If the position cannot be settled at a price higher than the bankruptcy price, the loss of the position will exceed the initial margin invested by the trader (that is, wear warehouse). In this case, the risk foundation is used to compensate for the loss of the position to avoid triggering automatic lightening.

The mechanism and application of venture funds
Each position has a corresponding liquidation price and bankruptcy price, the liquidation price is the corresponding price when the position’s margin reaches the maintenance margin requirement. In Dcoin, when the marked price reaches the liquidation price of the position, the position will be forcibly closed. In strong peacetime, the latest market price of Dcoin is used for settlement. The bankruptcy price refers to the price at which a position has lost all the initial margin.

When a liquidation occurs

Taking long orders as an example, if the position can be liquidated at a price higher than the bankruptcy price, the remaining margin of the position will be added to the risk fund.

Similarly, taking multiple orders as an example, in the opposite situation, the position is forced to liquidate at a price lower than the bankruptcy price, and the system will draw a quota from the balance of the risk fund to make up for the loss of the position.

If the risk fund is not enough to make up for the loss of shorting, the forced liquidation position will be taken over by the automatic lightening system.

for example
If you want to know more about the rules of risk funds, please see this case. The trader holds a long buy position in BTC/USDT, the initial margin is 1000 USDT, the liquidation price is US$7,000, and the bankruptcy price is US$6,950. Once the marked price reaches $7,000, the forced liquidation of the position will be triggered.

If this position can be forced to close at any price higher than $6,950, for example, the price is $6,980, the remaining margin will go to the risk fund.

On the contrary, if the execution price of the liquidation is lower than US$6,950, for example US$6930, the actual loss of 1,050USDT after the liquidation is 50USDT, and the risk fund will withdraw 50USDT to compensate for the loss of the liquidation.

Risk fund exhaustion
If the risk fund is not enough to make up for the loss of shorting, the forced liquidation position will be taken over by the automatic lightening system.