Insurance Fund
An insurance fund is a pool of assets maintained by some derivatives platforms to help absorb certain losses arising when liquidated positions cannot be closed without creating a deficit. The funding and use of the pool vary by platform.
Why it matters to you
In highly leveraged markets, prices can move faster than positions can be liquidated. An insurance fund can provide a financial buffer between failed liquidations and other mechanisms such as auto deleveraging or socialized losses. The existence of an insurance fund does not guarantee traders against losses.
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