Insurance Fund

The insurance fund is an important risk control mechanism in the perpetual contract trading system, mainly used to deal with position losses that cannot be balanced due to forced liquidation orders, ensuring the stability of the contract market and the safety of user funds. When extreme market situations occur, the insurance fund will be the first to bear this part of the loss.

What is an insurance fund?

The insurance fund is a capital pool built up from the market and is provided to the system as a risk prevention mechanism. The insurance fund is used to protect users from assuming losses beyond their available margin during extreme market volatility.

How does the insurance fund work?

In the perpetual contract trading system, when the user's margin ratio is lower than the maintenance margin ratio, the platform will initiate a forced liquidation mechanism. At this time, the user's position will be transferred to the insurance fund account for processing. The insurance fund will use market orders to close the position as soon as possible to minimize losses.

If the liquidated position is sold at a price better than the liquidation reference price (bankruptcy price), the excess returns will go to the insurance fund.

If the liquidated position is sold at a price worse than the liquidated reference price, the loss will be absorbed by the insurance fund first. If the insurance fund is insufficient to cover losses, the platform will use an automatic deleveraging (ADL) mechanism to deleverage users on the opposing side of the account, based on a set allocation system and criteria.

How to view the insurance fund?

You can view the size of the insurance fund and its historical balance changes on our platform's "Insurance Fund" page.

Summary

The insurance fund plays a vital role in the healthy operation of perpetual contract transactions. It not only maintains the stability of the market, but also protects the interests of users. By absorbing the losses caused by extreme market fluctuations, the insurance fund ensures the orderly operation of the contract transaction system in both bull and bear market environments.