What Happens When the Insurance Fund Is Depleted on a Futures Exchange?

If the insurance fund is depleted and a liquidated position still results in a loss that cannot be covered, the exchange must resort to its secondary mechanism. This is typically the Auto-Deleveraging (ADL) system.

ADL will then step in to cover the deficit by deleveraging profitable traders. In extremely rare cases, if ADL fails, the exchange may have to socialize the losses or use proprietary capital.