How Do Exchanges Replenish or Grow Their Insurance Funds?

Insurance funds primarily grow from the residual margin left over after a successful liquidation. When a trader's position is liquidated, the process aims to close the position at the bankruptcy price.

If the exchange manages to execute the trade at a better price than the bankruptcy price, the excess margin remaining after the trade is deposited into the insurance fund. Some exchanges may also allocate a portion of trading fees to the fund.