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.
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.