Insurance Fund

An insurance fund is a pool of capital a derivatives exchange holds to absorb the shortfall when a liquidated position is closed at a worse price than its bankruptcy price, so that the losing trader's deficit does not fall on profitable counterparties. It is topped up mainly by liquidations that closed better than required, and most venues publish its balance. An insurance fund is not deposit insurance: it does not protect you if the exchange fails, is hacked, or misuses customer assets — it covers one specific derivatives shortfall. When the fund is exhausted, losses are socialised through auto-deleveraging instead.