Insurance Fund
Perpetual Contract
What is the Insurance Fund?
The insurance fund is a reserve pool designed to protect traders from excessive losses in derivatives trading. When a trader’s position is liquidated, any remaining margin above the bankruptcy price is added to the insurance fund. However, if the liquidation price is lower than the bankruptcy price and the total position loss exceeds the trader’s initial margin, the insurance fund covers the deficit. This mechanism also helps reduce the risk of Auto-Deleveraging (ADL).
How Does the Insurance Fund Work?
When a forced liquidation occurs, the position is settled at the bankruptcy price, regardless of the current market price. The bankruptcy price is the level at which the trader’s initial margin is fully depleted. In this scenario, the insurance fund balance will increase or decrease depending on the difference between the final liquidation execution price and the bankruptcy price.
- If the liquidation execution price is higher than the bankruptcy price, the remaining margin is added to the insurance fund.
- If the liquidation execution price is lower than the bankruptcy price, the resulting futures loss is covered by the insurance fund.
How to Check the Insurance Fund Balance
To view insurance fund balance for all perpetual and delivery futures on XT, navigate to [Futures Information] and select Insurance Fund History.
Insurance Fund Depletion If a large number of positions are liquidated simultaneously and losses exceed the coverage provided by the positions’ margin, the insurance fund may be depleted. In such cases, if the insurance fund is insufficient to cover the deficit, the ADL mechanism will be triggered. This means that the profits of other traders’ positions on the platform may be used to offset the shortfall.