Does the Socialized Loss Calculation Consider the Trader’s Initial Margin?
The socialized loss calculation does not directly consider the initial margin. It is calculated based on the net deficit remaining after the liquidation and the depletion of the insurance fund.
The loss is then allocated proportionally based on the profitability and size of the opposing positions, not the initial collateral used to open them.
Glossar
Socialized Loss Calculation
Calculation ⎊ The socialized loss calculation, within cryptocurrency derivatives and options trading, represents a mechanism for distributing losses exceeding a predetermined threshold across a pool of participants, rather than solely burdening the counterparty.
Loss Calculation
Calculation ⎊ The systematic procedure for determining the realized economic loss on a trade, position, or portfolio, incorporating all costs including slippage, fees, and opportunity cost.