How does the Binance Futures insurance fund work?

What is the Binance Futures Insurance Fund?

The Binance Futures Insurance Fund is a dedicated reserve designed to protect traders from losses that may occur due to auto-deleveraging (ADL) events. When a trader's position is liquidated and the market price moves too quickly for the liquidation engine to close it at a profitable rate, the fund steps in. This mechanism ensures that profitable traders receive their full PNL—even if the losing side of the trade cannot cover the full amount. The fund is separate from Binance’s operational capital, and its balance is publicly viewable on the Binance Futures page.

How is the Insurance Fund Built?

The fund grows through several sources:

• Liquidation fees: When a position is liquidated, a portion of the fee collected goes directly into the insurance fund.
• Profit from forced liquidations: If a liquidated position is closed at a better price than the bankruptcy price, the surplus is added to the fund.
• Funding rate adjustments: In rare cases, if the funding rate mechanism generates excess income, a portion may be allocated to the fund.Each futures contract (e.g., BTCUSDT, ETHUSDT) has its own isolated insurance balance, meaning the fund for BTC does not cover losses in ETH or other pairs. This isolation ensures risk containment within each market.

  When Does the Insurance Fund Activate?

  The fund is triggered automatically when a liquidation leads to a negative balance that cannot be absorbed by the counterparty’s margin. This typically happens during extreme volatility or low liquidity. For example:
• A long position is liquidated at $30,000, but the bankruptcy price was $31,000.
• The system attempts to close the position, but slippage pushes the actual execution price to $29,500.
• The difference between the bankruptcy price and the actual execution creates a deficit.In such cases, the insurance fund covers the shortfall so that the profitable short position receives its full gains. This prevents ADL from impacting profitable traders.

  How to Check the Insurance Fund Balance?

  To view the current balance of the Insurance Fund:
• Log in to your Binance account.
• Navigate to the Futures section.
• Click on “Insurance Fund” at the top of the trading interface.
• Select the specific contract (e.g., BTCUSDT perpetual).The balance is updated in real-time and displayed in USDT. You can also see historical changes in the fund, including inflows from liquidations and outflows from coverage events. This transparency allows traders to assess the health of the market they are participating in.

  What Happens If the Insurance Fund Is Depleted?

  If the fund balance reaches zero and another loss event occurs, Binance initiates the Auto-Deleveraging (ADL) system. This means profitable positions may be forcibly reduced to absorb the loss from failed liquidations. ADL rankings are based on:
• Profitability of the position (most profitable first).
• Leverage used (higher leverage positions are prioritized).
• Total unrealized PNL.Traders can monitor their ADL rank in the position tab—it appears as a number from 1 to 5. A rank of 1 indicates the highest risk of being deleveraged. To avoid this, traders can reduce leverage or close positions during high volatility.

  How to Reduce Risk Related to the Insurance Fund?

  Traders can take proactive steps to minimize exposure:
• Use lower leverage: Positions with 5x or 10x are less likely to trigger ADL than 50x or 100x.
• Monitor fund balance: If the insurance fund for a specific pair drops below a critical threshold (e.g., 100 BTC for BTCUSDT), consider reducing exposure.
• Avoid trading during high volatility: Events like CPI releases or flash crashes increase the chance of fund depletion.
• Set stop-loss orders: Even with the fund, slippage can cause losses—manual risk management remains essential.

  Frequently Asked Questions

  Can I withdraw from the Insurance Fund?No. The Insurance Fund is not a user-accessible wallet. It is a system-controlled reserve that only activates during liquidation shortfalls. Users cannot deposit into or withdraw from it directly.

  Does the Insurance Fund cover all futures products equally?No. Each futures contract maintains its own fund. For example, the BTCUSDT perpetual fund does not cover losses in the ETHUSDT market. This ensures that high volatility in one market doesn’t impact others.

  Why did I still get ADL even when the fund had a positive balance?The fund only covers losses from liquidations that result in a negative balance. If the system cannot close a position at all—due to extreme slippage or lack of counterparty liquidity—ADL may activate even with a healthy fund.

  Is the Insurance Fund the same as the Binance Spot Wallet?No. The Insurance Fund is completely separate from all user wallets, including Spot, Margin, and Futures wallets. It is a system-level safety net, not a shared pool of user funds.