What is Futures Insurance Fund?
When a futures position triggers a forced liquidation process, the system initiates a Dutch auction to close the position in the market. Any remaining equity after the liquidation is transferred into the Futures Insurance Fund.
A Dutch auction is a bidding process where the auctioneer starts with a high price and progressively decreases it until a bidder accepts the offer. The winning bidder obtains the object and pays the price at which it was accepted.
The Futures Insurance Fund acts as a safeguard in crypto futures trading, absorbing losses during forced liquidation to prevent Auto-Deleveraging (ADL). ADL could otherwise disrupt normal positions by forcibly closing profitable trades to cover losses. During extreme market volatility, if a user’s position is liquidated, the system uses a Dutch auction (placing orders from high to low prices incrementally) to close it. If the liquidation proceeds fall short of covering the total loss, the Insurance Fund covers the deficit. Any remaining equity from the liquidation is transferred into the fund.
Key characteristics of Dutch Auction:
1. Descending-price auction: Starts above market price and lowers incrementally to attract buyers quickly, minimizing price volatility caused by low liquidity.
2. Prioritizing investor protection: The first bidder to accept the price sets the settlement price, ensuring fairness and transparency.
What is the Importance of Futures Insurance Fund?
1. Preventing Auto-Deleveraging (ADL): CoinEx uses the Insurance Fund to prevent investors’ positions from being automatically deleveraged. In case of insufficient market liquidity, exchanges may forcibly liquidate profitable positions to cover excess losses, reducing the profits for normal traders. By covering excess losses, the Insurance Fund avoids ADL, ensuring the stability of all traders’ positions.
2. Recirculating capital with value appreciation: After forced liquidation is triggered, the system uses a Dutch auction to close the position in the market. The Insurance Fund covers excess losses incurred during the liquidation.
3. Maintaining market stability: The Insurance Fund hedges against liquidity risks during extreme market conditions, reducing the risk of cascading liquidations that may cause price crashes, thereby enhancing platform risk control.
Pricing Methods and Applicable Scenarios for the Insurance Fund
CoinEx’s Futures Insurance Fund supports four pricing methods: USDT, USDC, BTC, and ETH, catering to most traders’ needs.
| Pricing methods |
USD-margined USDT/USDC |
Coin-margined BTC/ETH |
| Advantages | Stable value; ideal for USD-based profit/loss calculations | Hold underlying assets; avoid losses in rising markets |
| Scenarios | Beginner-friendly; hedges fiat currency risks | For long-term investors bullish on BTC/ETH growth prospects |
| Target traders | Stablecoin holders | Cryptocurrency holders |
How to check the details of CoinEx Futures Insurance Fund
Web: Navigation Bar > Futures > Market Info > Insurance Fund
App: CoinEx App > Futures > Top Right Menu (...) > Market Info > Insurance Fund