What Is ‘Socialized Loss’ and How Does It Relate to the Insurance Fund?

Socialized loss is a risk mitigation method where the remaining deficit from bankrupt accounts, which is not covered by the insurance fund, is distributed proportionally among all profitable traders. The insurance fund's purpose is to prevent this.

If the fund fails, ADL is a form of selective socialization of loss, but in some older or less robust systems, the deficit might be broadly distributed. A healthy insurance fund prevents the need for any form of loss socialization.