Insurance Fund
Exchange fund covering losses from liquidated positions in case of bankruptcy.
The insurance fund is a reserve fund that crypto exchanges (Binance, Bybit, OKX) hold to cover losses when a liquidated position can't cover all its debts — preventing auto-deleveraging (ADL).
How it works:
•Trader opens position with 10x leverage
•Price moves sharply, position is liquidated
•Exchange's profit from liquidation (between liquidation and bankruptcy price) is added to insurance fund
•If price passes through bankruptcy price, insurance fund covers the difference
ADL (Auto-Deleveraging):
•Last resort when insurance fund is insufficient
•Profitable counter-positions are forcibly closed proportionally
•Affects top profitable traders — negative experience
Insurance fund size:
•Binance: ~$1 billion+
•Bybit: ~$400M+
•Smaller exchange = smaller fund = higher ADL risk
Check insurance fund before trading on a smaller exchange.