What Is the Significance of the “Spread” between These Two Prices for the Insurance Fund?

The spread, or buffer, between the liquidation price and the bankruptcy price is critical for the insurance fund's health. When a liquidation order is executed within this spread, the residual equity is collected and added to the insurance fund.

A wider spread provides a larger safety net and more opportunity for the fund to grow. If the liquidation executes below the bankruptcy price, the fund must cover the negative balance, which is why the spread is an important risk metric.