Insurance fund

Insurance funds act as a form of protection for traders who have gone bankrupt, safeguarding them against significant losses, and guaranteeing that successful traders receive their full profits.

Essentially, an insurance fund is a reserve fund maintained by some exchanges that offer perpetual futures trading. The purpose of the fund is to protect traders and the exchange against the risk of catastrophic losses due to unexpected market movements, such as price slippage, sudden market crashes, or trading system failures.

The insurance fund in perpetual futures trading is a guarantee system that protects traders against losses and ensures that winning traders receive their full profits. It is also designed to ensure the continuous operation of the exchange by acting as a safety net against the risks of trader default or technical failures. The insurance fund is typically funded by a small percentage of trading fees and its size can change depending on the level of risk in the market. When a trader's position is liquidated or when there is a shortfall in margin requirements, the insurance fund is used to cover the losses so that other traders and the exchange are not affected.