All termsLiquidation and Exchange Risk SystemsWorth knowing
Negative Equity
Negative equity occurs when losses or obligations exceed the value available to support them under the relevant account or position calculation.
Why it matters to you
One purpose of liquidation systems is to intervene before leveraged losses create deficits that cannot be covered by the collateral supporting the position. During extreme price movements or poor execution conditions, however, losses can develop faster than a position can be closed. This is where mechanisms such as insurance funds and ADL become relevant.
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