Bankruptcy Price
The Bankruptcy Price is the theoretical price level at which a trader's account equity would reach zero, resulting in a total loss of their initial collateral. This price is calculated by the exchange to determine the point of total insolvency for a specific position.
In practice, exchanges aim to liquidate positions before this price is reached to avoid negative balances. The gap between the liquidation threshold and the bankruptcy price serves as a buffer to protect the exchange and its insurance fund.
If a position is liquidated below the bankruptcy price, the resulting deficit must be covered by the platform's insurance pool. It is a vital concept for understanding the absolute limits of a leveraged position.
Glossary
Negative Balance Prevention
Balance ⎊ Negative Balance Prevention, within cryptocurrency derivatives, options trading, and financial derivatives, fundamentally addresses the risk of an account holding a debit position.
Options Trading Leverage
Capital ⎊ Options trading leverage, within cryptocurrency markets, represents the utilization of borrowed capital to amplify potential returns from options contracts, fundamentally altering risk-exposure profiles.
Leverage Risk Management
Capital ⎊ Leverage risk management within cryptocurrency, options, and derivatives fundamentally concerns the preservation of capital against adverse price movements amplified by the use of borrowed funds or complex instruments.
Total Position Value
Asset ⎊ Total Position Value represents the aggregated monetary value of all holdings within a portfolio, encompassing cryptocurrency, options contracts, and other financial derivatives.