When liquidation occurs, the liquidation engine automatically unwinds the position. The insurance fund mechanism varies depending on whether the execution price is above or below the bankruptcy price.

1. Execution Price > Bankruptcy Price (For Long position, Short position vice versa):
   • If the position is executed above the bankruptcy price, margin remains. The remaining margin goes into the insurance fund.
2. Execution Price < Bankruptcy Price (For Long position, Short position vice versa):
   • If the position is executed at a lower price than the bankruptcy price, losses occur. The loss incurred is covered by the insurance fund.

Example:

• Trader A holds a long position on BTCUSDT perpetual swap:
  • Liquidation Price: 30,000 USDT
  • Bankruptcy Price: 25,000 USDT
  • If the liquidation engine unwinds the position for 27,000 USDT, it leaves a 2,000 USDT margin. The remaining margin is sent to the insurance fund.
  • If the liquidation engine unwinds the position for 24,000 USDT, it results in a 1,000 USDT loss. This loss is covered by withdrawal from the insurance fund.

Note: On the Flipster platform, the Backstop Liquidity Provider rather than the liquidation engine unwinds the liquidated position.