Phemex uses an Insurance Fund to prevent your positions to be Auto-Deleveraged. The Insurance Fund is used to alleviate unfilled liquidation orders on the platform before they are taken over by the auto-deleveraging system. Due to how Phemex’s platform is structured the exchange does not require payments from the traders who have negative account balances when they are liquidated in a leveraged trade. Instead, the exchange uses its Insurance Fund to ensure the winning party of a trade receives its expected profits even if the losing party’s losses do not cover the winning party’s gains. The Fund grows from liquidations that were able to be executed in the market at a price better than the bankruptcy price of that specific position.
In what kind of situation would I need the insurance fund?
A huge liquidation, for instance, can cause a cascade of margin calls/stops, Phemex provides an insurance fund so that everyone will receive their due profits without anyone owing more than they initially invested.
Is the insurance fund used often?
No, the insurance fund comes into action only in extreme circumstances, it acts as a safeguard for the hazards of leverage trading.