How Does the Concept of ‘Negative Equity’ Relate to the Bankruptcy Price?
Negative equity occurs when the actual realized loss from a liquidated position exceeds the trader's collateral, pushing the account balance below zero. This happens when the liquidation execution price is worse than the calculated bankruptcy price.
The bankruptcy price is the theoretical zero-equity point, and any execution beyond it results in negative equity, which is the exact loss the insurance fund is designed to cover.
