Graded funds are funds with different risk-return characteristics in different shares, mainly including financing grading and long-short grading. The former is generally divided into two shares, A and B, and B raises funds from A to expand investment leverage. We all know that stock and futures investors are leveraged, which means there is a risk of forced liquidation. So is the grading foundation closed?

Is the grading foundation closed?

Graded funds will not be forced to close their positions. However, when B shares continue to lose money, its leverage will increase. In order to prevent A from taking risks for B, when the net value is below a certain value, the fund will be discounted. At present, the mainstream discount condition is that the net value of B share falls below 0.25. The discount will return the A share, the B share and the net value of the parent fund to 1. After the discount, the B share leverage returns to the normal value, and the overall risk of the parent fund is reduced.

Although there is no risk of forced liquidation, when the falling B shares trigger the discount clause, the losses to B-share investors are also considerable. After the discount, investors with share B have lower principal and lower leverage, and it will only be more difficult to get back their capital.