How Is the Loss Amount Calculated for Socialization?
The loss amount for socialization is calculated as the total deficit remaining after all available liquidation margins and the entire insurance fund have been exhausted. This net deficit is then divided proportionally among all profitable traders on the opposite side of the market.
The allocation is usually based on the size and profitability of each trader's position, ensuring those with larger gains contribute more to cover the shortfall.
Glossar
Loss Amount
Exposure ⎊ Loss Amount, within cryptocurrency, options, and derivatives, represents the quantifiable decrement to capital resulting from adverse price movements or unfavorable contract settlements.
Socialized Loss
Mechanism ⎊ Socialized loss, within cryptocurrency derivatives and options trading, describes the distribution of losses across a broader participant base than those directly holding a losing position, often amplified by leveraged exposure and cascading liquidations.
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.