Definition
An insurance fund is a reserve a futures exchange keeps so that the winning side of a trade still gets paid when a losing trader's margin runs out. Auto-deleveraging (ADL) is what the exchange does when that reserve is not enough: it closes part of the most profitable opposing positions instead. Both exist because a leveraged position can lose more than the margin behind it. The live balances above come from the exchange insurance funds page, which records Binance, Bybit and Gate every hour.
Why a liquidation can close below the bankruptcy price
Every leveraged position has a bankruptcy price: the price at which its losses equal the whole margin. Exchanges do not wait for it. They liquidate earlier, at the mark price that crosses the maintenance margin, leaving a small buffer between the liquidation price and the bankruptcy price.
In calm markets the liquidation engine closes the position inside that buffer. In a fast move, or on a thin order book, it may not: the price can gap through the buffer, or the liquidation order itself can push the price further as it fills. When the fill is worse than the bankruptcy price, the position has lost more than its margin. Someone has to pay the gap, because the trader on the other side of the contract is owed their full profit.
How the fund absorbs the gap and is topped up
That is the insurance fund's job. When a liquidation fills worse than the bankruptcy price, the fund pays the difference. When it fills better, the remaining margin, after fees, goes into the fund instead of back to the trader. Over many liquidations those surpluses are what keep it growing, so a fund tends to rise in orderly markets and fall in sharp ones. Binance also tops a fund up from its own assets when it falls below the minimum size it sets for it.
A worked example: a trader is long $10,000 of BTC with $1,000 of margin, so the bankruptcy price is 10% below entry. The engine takes the position over at a price 9.5% below entry. If it sells at 9.7% below, about $30 of margin is left over, less fees, and goes into the fund. If the market gaps and it can only sell at 10.4% below, the position has lost $1,040 against $1,000 of margin, and the fund pays the $40.
Shared and isolated pools
An exchange does not always keep one fund for everything. The insurance funds table labels each pool as one of these:
- Shared: one pool backs many contracts, typically the large ones such as BTC and ETH. A loss on any of them draws on the same balance, so a big pool can absorb a bad liquidation in a contract that alone would have been too small to cover it.
- Isolated: a pool backs a single contract or a small group of smaller coins. A crash in one of those coins can empty its pool without drawing on the shared one. Isolation is not always absolute: Bybit can redistribute money from an isolated pool that is in surplus to other isolated pools that have gone negative before it falls back on ADL.
- Dated futures: pools that back quarterly and other expiring contracts, kept apart from the perpetual pools.
So the headline total of an exchange's fund says less than it seems: what matters for one contract is the pool that backs it. Binance and Bybit each split their funds this way, and Bybit keeps its USDT, USDC and inverse contracts in separate pools. Gate reports one fund per settlement currency. The Binance, Bybit and Gate pages list each pool with the contracts it covers.
What ADL is and how the queue is ranked
When a pool cannot cover a bankrupt position's loss, the exchange stops selling the position into the market and auto-deleverages instead. It matches the bankrupt position against traders on the opposite side and closes part or all of their positions at the bankrupt position's price. Those traders keep the profit they had up to that price, but they lose the position without placing an order, often in the middle of the move they were winning on.
Who is first is decided by the ADL queue. Each exchange ranks open positions by their profit percentage multiplied by their leverage: a position that is far in profit and highly leveraged comes first, a small or unleveraged one last. A position in loss has the lowest priority. Exchanges show the rank as an indicator of up to five lights next to the position; more lights means closer to the front. Lowering leverage, for example by adding margin, lowers the rank. Closing part of a position is different: it reduces how many contracts can be deleveraged, but the profit percentage and leverage of what is left stay the same, so Bybit notes that it does not lower the ranking. Check how your exchange computes the rank before relying on either.
ADL does not always wait for a fund to reach zero. Bybit also triggers it for a pool whose balance falls by more than a set share within 8 hours. The details differ by venue, so check the sources below for the exchange you use.
Hyperliquid's different design
Hyperliquid does not have an exchange insurance fund of this kind. Liquidations first go to the order book; positions the book cannot take are taken over by a liquidator vault that is part of HLP, the community vault depositors share profit and loss with. ADL remains its last resort. Its trading fees go to the Assistance Fund, which buys HYPE; it is not a liquidation reserve. Neither appears in the insurance fund table.
What a falling balance does and does not mean
- It can mean the fund is working. A sharp drop during a liquidation cascade is the fund paying for liquidations that filled past the bankruptcy price, which is what it is for.
- It can be a transfer. Exchanges move money between pools, merge them and split them; one pool falling while another rises is not a loss.
- It can be price. Part of some funds is held in BTC, BNB or other coins, so their USD value falls when those coins fall, even if no money left the fund.
- It raises the chance of ADL. A pool that keeps shrinking, especially an isolated one, is closer to the point where profitable traders get auto-deleveraged.
- It does not measure solvency. An insurance fund is not the exchange's reserves. A large fund is not proof that an exchange is safe, and a small one is not proof that it is not.
This page explains how the mechanism works. It is not a recommendation to trade and not financial advice.
Checked against the exchanges' own documentation on 19 October 2026: Binance: introduction to futures insurance funds · Binance: futures liquidation protocols · Bybit: insurance fund · Bybit: auto-deleveraging (ADL) mechanism · Hyperliquid: liquidations. Not financial advice.