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What Is the Role of the Insurance Fund in High-Leverage Trading?

To cover losses that exceed a liquidated position's margin, preventing bad debt for the exchange and the use of the ADL system.
Greeks.Live21.11.25

What Is the Role of the Insurance Fund in High-Leverage Trading?

The insurance fund's primary role is to cover losses that exceed the liquidated position's margin collateral. This happens when a position is liquidated below its bankruptcy price in a fast-moving market.

The fund prevents the exchange from incurring bad debt and prevents the use of the auto-deleveraging (ADL) system, which protects other profitable traders.

What Is ‘Auto-Deleveraging’ (ADL) and How Is It Used by Crypto Exchanges?
What Is the Risk of ‘Negative Equity’ in a Highly Leveraged Crypto Derivatives Position?
How Does an Auto-Deleveraging (ADL) System Function in a Futures Exchange?
How Does the “Auto-Deleveraging” (ADL) System Work in a Derivatives Exchange?

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