Risk Management Mechanism
Maximum Drawdown 24%
AIIA Finance places the highest priority on risk management by setting a clearly defined Maximum Drawdown (MaxDD) threshold, measured directly in points of the PnL Index. Specifically, this threshold is set at 24 points. This means if the PnL Index decreases by exactly or more than 24 points from its highest peak, the fund immediately activates special risk mitigation measures designed to protect investor capital and prevent further potential losses. This means that an investor’s maximum loss is capped at 24% (since 1 point is equivalent to 1% profit/loss in the trading return)
When the fund reaches the maximum drawdown of 24 points from the highest peak of the PnL index, the following actions are taken:
Immediate Investor Notification: As soon as the PnL Index reaches a drawdown of 24 points from its previous peak, investors are immediately notified of the situation. Transparency ensures investors remain fully informed of the fund’s status.
Transition to Paper Trading: Paper Trading refers to simulated trading activities conducted under real market conditions, but utilizing virtual money instead of actual investor capital. The detailed Paper Trading process includes:
Activation: Paper Trading is activated immediately when the PnL Index experiences a decline of exactly or more than 24 points from its peak.
During this period, the fund management team will:
Suspend all real-money trading to prevent further actual capital loss.
Evaluate current trading strategies comprehensively.
Test and refine new strategies within a safe, risk-free environment.
Run the Paper Trading PnL Index concurrently and compare with the real PnL Index.
Duration: Paper Trading lasts for a maximum period of one month or until the fund fully recovers the drawdown (confirmed when the paper simulated PnL Index surpasses its previous peak), whichever comes first.
Criteria for Drawdown Recovery: Drawdown recovery is confirmed only when the paper simulated PnL Index during Paper Trading achieves a new high, surpassing the previous peak before the drawdown occurred. This ensures recovery is genuine, stable, and sustainable rather than temporary.
Investor Options After Paper Trading: Once the Paper Trading period ends (after full recovery or the expiration of one month), investors are provided with two clear choices:
Exit the Fund: Investors may choose to withdraw all or part of their investment, with profits or losses calculated based on the current PnL Index at the time of withdrawal.
Continue Investing: Investors who decide to stay in the fund will see their ownership proportions recalculated based on the remaining capital after withdrawals by other investors. The fund will then resume live trading operations.
Example:
Step 1 (Initial): Suppose the initial PnL Index is 100 points. After some periods, the fund performs well, and the PnL Index rises to a new peak of 120 points.
Step 2 (Drawdown Occurs): Subsequently, market conditions lead to a sharp decline, and the PnL Index falls from 120 points to exactly 96 points, representing a decline of 24 points. At this moment, the MaxDD threshold is reached, triggering immediate risk management measures:
Investors are instantly notified of the drawdown.
The fund immediately suspends all real-money trading and switches to Paper Trading.
Step 3 (Paper Trading Activated): During the simulated trading period (Paper Trading), the management team adjusts strategies, resulting in the simulated PnL Index recovering from 96 points to a new peak of 121 points, exceeding the previous peak (120 points). Meanwhile, the real PnL Index still remains at 96 points due to the suspension of real-money trading. At this point, the fund officially confirms a full drawdown recovery.
Step 4 (Investor Decision Post-Recovery): Investors are informed of the successful recovery and presented with the following choices:
Withdraw: Investors can withdraw partially or fully at the current index level of 96 points.
Continue Investing: Investors choosing to remain in the fund continue with adjusted proportions, calculated based on the remaining capital after others exit, as the fund resumes live trading.
Reserve Fund Mechanism For Liquidity Risk Mitigation
To safeguard liquidity in times of large capital withdrawals, AIIA Finance employs a Reserve Fund which acts as a backup system that supports both trading operations and user withdrawals.
When trading loses too much money, the Trading Fund may run low on capital. The Reserve Fund steps in by providing extra funds to keep trading going and prevent major disruptions.
When a lot of users withdraw at the same time, the platform may not have enough money immediately available. In this case, the Reserve Fund sends liquidity to ensure users can withdraw their funds smoothly.
Over time, as trading generates profits, some of those profits are sent back to the Reserve Fund, replenishing it so it can continue providing support in the future.
This cycle keeps the system balanced—helping during tough times and refilling when things are going well.
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