Liquidations can leave a shortfall
During a fast move, the available market may execute a forced close beyond the bankruptcy boundary. The difference must be assigned according to the venue's loss-allocation rules.
Insurance funds are a buffer, not a guarantee
A venue may accumulate an insurance fund from liquidation surpluses or other revenue. Its balance, permitted uses, and transparency differ by provider.
Auto-deleveraging transfers stress
If normal liquidation and insurance resources are insufficient, some markets reduce selected opposing positions. Traders should understand ranking rules and whether profitable exposure can be closed without a normal order.
Loss resources form a waterfall
A venue first follows its normal liquidation process. If a position cannot be resolved without a deficit, an insurance fund may absorb the shortfall. If that resource becomes insufficient, a final loss-allocation mechanism such as auto-deleveraging can reduce profitable opposing positions. The ordering and thresholds are venue-specific.21
An insurance-fund balance is not the same as a guarantee to every trader. Its assets may already support inherited positions, its permitted uses can be narrow, and extreme moves can change both liabilities and asset values quickly.1
Questions to ask before stress arrives
Check whether the provider publishes the fund address or balance, what funds it, when ADL activates, how accounts are ranked, and whether a profitable position can be partially closed without a user order. These rules matter most when normal liquidity is least reliable.13