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10 sats \ 2 replies \ @kevin_lightning 28 Oct 2022 \ parent \ on: Kollider AMA bitcoin
In the event of forced liquidation, the insurance fund will cover progressive offloading of the position. If that doesn't happen (or if the insurance fund is insufficient to do so) auto deleveraging kicks in with fill-or-kill orders to minimize liquidation ripple effects.
Just to check if I get this right. Let’s say that I’m long on Bitcoin (A). I open a position by placing a limit order in the orderbook. Then person (B) fulfils this order and takes a sort position.
Bitcoin goes to the Moon and the position of person (B) need to be liquidated. In the orderbook there is no liquidity to take over his position. So auto deleveraging kicks in and will kill my (A) position as well. I will get the available margin form B and, if possible/needed, funds from the insurance fund.
I assume that this auto deleveraging system will prevent that I will make any lose up to that moment. After the auto deleveraging I have no position anymore. So, from that moment I have no position to profit form any further increase.
Hopefully, I understand that well. I understand that this would be an exceedingly rare event.
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Yeah that is exactly right. Also an interesting note here. If the person that goes short against your long is only levered 1x, then that person cannot get liquidated. This is because of the price convexity of an inversely priced perpetual swap. The liquidation price of a 1x short is infinity.
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