What Is ‘Socialized Loss’ in Futures Trading?

Socialized loss occurs when the losses from liquidated positions, which the insurance fund cannot cover, are distributed across all profitable traders on the exchange. This is an alternative to the ADL system, where instead of targeting specific profitable traders, the loss is spread proportionally.

Modern crypto exchanges prefer the insurance fund and ADL to avoid the less precise and often unpopular socialized loss model. It essentially pools the deficit.