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Introduction to Insurance Funds

2019-09-09 02:50

What are Insurance Funds?

Insurance funds are safety nets that protect bankrupt traders from adverse losses and ensure that the profits of winning traders are paid out in full. The primary purpose of an insurance fund is to limit the occurrences of counterparty liquidations. In counterparty liquidations, positions of opposing traders are automatically liquidated to cover for a bankrupt trader’s position. In these situations, opposing profitable positions with high leverage are likely to receive counterparty liquidations. Insurance Funds solve this issue by using the collateral from non-bankrupt users’ fees to cover the losses of bankrupt users (negative balance accounts).

How do Insurance Funds work?

In cases where a trader in liquidation (defined as collateral < maintenance margin) has less than 0 USDT after all his positions are liquidated, or is otherwise unable to liquidate positions, the trader is bankrupt, and Binance will take over the remaining positions.
In the majority of these cases, Binance will use the Insurance Fund to take over the positions and offload them onto the market gradually. The Insurance Fund will collect liquidation fees from users that do not result in bankruptcy. If the insurance fund is unable to accept positions from the liquidations, counterparty-liquidation will occur.
The Insurance Fund will be subjected to the following rules:
The fund will have a maximum net notional position check. The fund will not be allowed to exceed a predefined position notional on the market; by default, this is 100% the size of the insurance fund. Any position that would increase beyond the max notional will be subjected to counterparty-liquidation. The insurance fund will offload positions according to a preset algorithm. All events that generally require intervention by the insurance fund will go into counterparty-liquidation before the fund can take positions.
You can access the insurance fund balance (USDT or BUSD) of BTCUSDT, ETHUSDT, BTCBUSD, ETHBUSD, and all other futures contracts by clicking [Information] - [Insurance Fund History] on the Binance Futures trading interface.
Alternatively, you can directly visit [Insurance Fund History].
Binance offers USDT-margined and BUSD-margined Futures contracts under USDⓈ-M Futures. The following is the composition of Insurance funds for USDⓈ-M contracts:
  • BTC, ETH, and BNB USDT-margined contracts share the same insurance fund.
  • USDT-margined contracts with a maximum leverage of 75x share the same insurance fund.
  • USDT-margined contracts with a maximum leverage of 50x and 25x share the same insurance fund.
  • BTC, ETH, and BNB BUSD-margined contracts share the same insurance fund.
  • All other BUSD-margined contracts share the same insurance funds.
The insurance funds for USDⓈ-M contracts are supported by the Multi-Assets Mode, which means the USDT and BUSD held in the insurance funds are jointly accounted for in the balance calculation. You can find their asset balance from the insurance balance chart.