What is an insurance fund in crypto futures, and what does it cover?
Figures on this page are as of 2026-09. Fees, limits and margin tiers change — check the venue's own docs.
An insurance fund is a pool held by a derivatives venue that absorbs the loss when a liquidated position closes at a worse price than its bankruptcy price — the price at which its margin is fully used up — so that the shortfall does not land on the traders holding the other side.
This page is for anyone trading perpetuals who wants to know what happens after a position’s margin is gone, and what the fund does and does not protect. It covers the bankruptcy-price mechanics, how Binance, Bybit and OKX describe their funds, what Hyperliquid has in the same role, and why the fund says nothing about the risk on your own position.
Why this matters now
Every perpetual position has a counterparty whose unrealised profit is its unrealised loss. If a position is liquidated and the closing order fills beyond the point where its margin reaches zero, somebody has to cover the difference. The insurance fund is the first candidate. When it cannot, venues fall back on auto-deleveraging, which closes profitable positions on the other side.
So the fund is what stands between a stranger’s badly filled liquidation and your winning position. It is also, largely, paid for by liquidated traders — including you, if you are ever one of them.
How it actually works
- A position reaches its liquidation level. The trigger is the mark price against the maintenance requirement; see how liquidation price is calculated.
- The venue closes it into the book. The fill depends on the depth available at that moment, which in a fast market can be poor.
- The fill is compared with the bankruptcy price. Bybit states that liquidated positions are always settled at the bankruptcy price. From the liquidated trader’s side, the margin is gone either way.
- The difference goes to or from the fund. If the market close is better than bankruptcy, Bybit puts the surplus into the fund; if worse, the fund covers the shortfall. OKX describes its fund as absorbing the deficit when a liquidation fills worse than bankruptcy, and as funded mainly by liquidation surplus.
- If the fund cannot absorb the loss, the venue moves to ADL. Binance calls ADL the final step, used only when the insurance funds are unable to accept a bankrupt position.
An illustrative example on a venue that settles at the bankruptcy price, as
Bybit documents. A 10× isolated long of 0.5 at 60,000 posts 3,000 of margin;
its bankruptcy price is 54,000. It is liquidated and the closing order averages
54,200. The position is settled at 54,000, and the extra
(54,200 − 54,000) × 0.5 = 100 goes into the fund. Had the order averaged
53,800, the fund would pay the 100 shortfall. The trader’s loss is the 3,000 of
margin in both cases.
How each venue runs it
| Venue | What it is called | Where its money comes from | What it does | Structure |
|---|---|---|---|---|
| Binance USDⓈ-M | Futures Insurance Fund | Includes Liquidation Clearance Fees from non-bankrupt liquidations | Takes over bankrupt positions at the bankruptcy price | Shared by groups of contracts; the grouping is published and changes |
| Bybit | Insurance Fund | Surplus when a liquidation closes better than bankruptcy | Covers the shortfall when it closes worse | Separate pools for Inverse, USDT and USDC contracts; some USDT symbols have their own isolated pool |
| OKX | Security Fund | Mainly liquidation surplus, plus OKX contributions; liquidation fees’ net proceeds go to it | Absorbs the deficit when a liquidation fills worse than bankruptcy | Per applicable fund; balance via API |
| Hyperliquid | We did not find a separately named insurance fund | — | A liquidator vault, part of HLP, takes over positions the book cannot liquidate | Backstop; its liquidation PnL goes to the community through HLP |
The order of events on Binance is spelled out: the engine first tries a partial reduction with a large IOC order, a clearance fee is charged on liquidation, and a position left with a negative balance is taken over by the fund.
On OKX, the liquidation fee is charged at the user’s current-tier taker rate, an additional clearance fee may apply, and the net proceeds go to the security fund. OKX is blunt about what the fund is not: it is “not an insurance policy” and is “the sole property of OKX”.
Balances are published: Bybit through GET /v5/market/insurance, OKX through
GET /api/v5/public/insurance-fund, Binance on its insurance fund page. They
change constantly, which is why none is quoted here.
What Hyperliquid has instead
Hyperliquid’s docs describe a layered process rather than a named fund.
First, a position below maintenance margin is sent to the book as market orders. If that restores the requirement, any remaining collateral stays with the trader, and the docs stress there is no clearance fee on liquidations.
If equity keeps falling below a further threshold — a fraction of the maintenance margin, set on the liquidations page — a backstop liquidation hands the position to the liquidator vault. For cross margin, all cross positions and cross margin transfer; for isolated, only that position and its margin. Maintenance margin is not returned in a backstop. That vault is the functional counterpart of a CEX insurance fund and liquidation engine combined.
The fees page also mentions an “assistance fund”. Hyperliquid describes it as converting fees to HYPE and burning it. It is not described as covering liquidation losses, and should not be read as an insurance fund.
Insurance fund vs the things it gets confused with
Not insurance for you. The fund protects the other side from your shortfall. It does not reimburse a liquidated trader, and it does not move your liquidation price.
Not ADL. The fund is the first backstop, ADL the second. A healthy fund makes ADL less likely; it does not make it impossible, and on Bybit the ADL trigger is defined partly by drawdown in the fund itself.
Not your margin. Your margin is consumed by the liquidation. The fund steps in only for losses beyond it.
Not a fee pool. Clearance and liquidation fees feed some funds, but the main source on Bybit and OKX is liquidation surplus.
Where the boundary should sit
- Read the fund as counterparty context, not as protection. A larger pool backing your contract makes deleveraging of profitable positions less likely. It does nothing for a position heading to liquidation. Check which pool backs your contract: a Bybit symbol with its own isolated pool, or a Binance contract group, may be backed by less than the headline figure.
- Size so that the fund never matters to you. It is reached only after your margin is gone. The distance to that point is set by position size, leverage and maintenance margin — the calculators for Binance Futures, Bybit, OKX and Hyperliquid show it.
- Watch the ADL indicator on profitable positions. That is where a depleted fund reaches you, and it is covered in what is auto-deleveraging.
- Do not describe it as a guarantee. OKX itself says it is not an insurance policy. Neither should your risk notes.
FAQ
What is an insurance fund in crypto futures?
It is a pool held by a derivatives venue to absorb losses when a liquidated position closes at a worse price than its bankruptcy price, where its margin is used up. It is usually funded by surplus from liquidations that closed better than bankruptcy and by liquidation fees. If it cannot absorb a loss, the venue falls back on auto-deleveraging.
Does the insurance fund protect my position from liquidation?
No. The fund steps in only after a position’s margin is gone, and it covers the shortfall owed to the other side, not the liquidated trader’s loss. It does not change your liquidation price. OKX states plainly that its security fund is not an insurance policy.
What happens when an insurance fund runs out?
The venue auto-deleverages: it closes profitable positions on the opposite side of the bankrupt one, ranked by profit and leverage, without those traders placing an order. Binance describes ADL as the final step, used only when its insurance funds cannot accept a bankrupt position.
Does Hyperliquid have an insurance fund?
We did not find a Hyperliquid page describing a separately named insurance fund. The documented backstop is a liquidator vault, part of HLP, which takes over positions that cannot be liquidated through the order book. Hyperliquid’s “assistance fund” converts fees to HYPE and burns it, and is not described as covering liquidation losses.