What is the Risk Protection Fund?
The Risk Protection Fund is a security mechanism designed to protect users from adverse losses when bankrupt accounts occur and to ensure that profitable users receive their full profits. Its purpose is to reduce the likelihood of counterparty forced liquidations.
When a counterparty is forcibly liquidated, the positions of other users may be automatically reduced to cover the bankrupt user. This can especially affect profitable users who are using high leverage. The Risk Protection Fund uses collateral collected from non bankrupt users through fees to cover negative balance accounts, helping prevent unnecessary automatic reductions.
How does the Risk Protection Fund operate?
The Risk Protection Fund compensates for losses when a user’s account balance falls below zero. Fees collected from non bankrupt users during forced liquidations are added to the Risk Protection Fund. Its primary goal is to reduce counterparty liquidations.
If a user enters a liquidation state where their account no longer has sufficient assets to continue liquidating, WOO X Pro will take over the remaining positions on the account.
In this case, WOO X Pro will use the Risk Protection Fund to execute a reverse liquidation. If the fund is not sufficient to take over the remaining positions, counterparty automatic liquidation will be triggered.
The Risk Protection Fund follows a maximum net nominal position rule, ensuring that its nominal value does not exceed a preset limit. Typically, this limit is set to one hundred percent of the total Risk Protection Fund. Any nominal value exceeding this limit will be automatically reduced according to a preset algorithm. At this stage, situations that would normally require intervention from the Risk Protection Fund will instead be handled through counterparty automatic reductions.
In WOO X Pro futures, each coin margined perpetual contract has its own dedicated Risk Protection Fund account. All USDT margined perpetual contracts share a single Risk Protection Fund account.
Disclaimer
Cryptocurrencies carry high market risk and price volatility despite their growth potential. Users should conduct their own research and invest at their own discretion. WOO X Pro strives to list high quality assets but will not be responsible for investment losses.