Risk Limit

AAX imposes risk limits that require higher margin levels for larger position sizes.

As the position size increases, the maintenance and initial margin requirements will increase. Users must authorize a higher or lower risk limit on their “Open Position”. Margin requirements will automatically increase or decrease as the risk limit changes.

Insurance Fund

AAX sets the liquidation price a fraction above the Bankruptcy Price (in the case of Longs) or a fraction below the Bankruptcy Price (Shorts) to prevent traders from going bankrupt, and this is achieved by having an Insurance Fund.

Using the same example mentioned above, bankruptcy price is $99.00 since the maintenance margin is $1. However, in a weak market, the value of assets can drop below the bankruptcy price, in this case, the Insurance Fund will pick up the loss. If the liquidation order is filled at $98.90, the price risk of liquidation is taken up by AAX insurance fund, meaning the insurance fund will take up the loss of $0.10.

The above example demonstrates in principle how AAX handles liquidation, actual figures on marked price, liquidation price and bankruptcy price is subjected to the investment strategy of individuals.

**Examples above may not reflect on the real market as it varies on other conditions such as volume, fees, risk level, etc.

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