Skip to main content

What Are ‘Socialized Losses’ in the Context of Futures Trading?

Socialized losses occur when the insurance fund fails to cover a deficit from a liquidation, and the exchange distributes the remaining loss across all profitable traders. This means the final profits of those traders are slightly reduced to absorb the shortfall.

It is a risk management technique used to ensure the exchange's overall solvency and counterparty obligations are met.

What Is the Role of ‘Socialized Losses’ as an Alternative to an Insurance Fund?
Explain the Process of “Socialized Losses” in a Derivatives Market
Why Is ADL Generally Preferred over Socialized Loss by Major Exchanges?
What Mechanism Is Used to Distribute a Socialized Loss among Profitable Traders?