# Insurance Fund

### What is Insurance Fund? <a href="#cbmen" id="cbmen"></a>

The Insurance Fund is a safety mechanism in GooseFX perps DEX that protects against levered losses sustained by traders in the platform. It acts as a backstop to maintain the solvency of the exchange in case of any bankruptcies.&#x20;

The Insurance Fund is funded by premiums collected from liquidation fees & trading fees. The fund is used to pay off liabilities when an account becomes bankrupt. If the losses incurred are greater than the balance of the Insurance Fund, the losses will be socialized among participants, such as perpetual traders, in proportion to their deposits or positions.

### Why is Insurance Fund necessary?  <a href="#hqk4j" id="hqk4j"></a>

The Insurance Fund is necessary to protect against levered losses sustained by users of the platform. It serves as a safety net in the event that a user's account has more unrealized losses than available collateral, which may occur during particularly volatile market conditions when accounts with insufficient margin may not be liquidated in time or at their zero-price. The insurance fund acts as a solvency buffer, ensuring that there are sufficient funds to pay out profitable positions in the event of a bankruptcy.

### What is Socialised Loss? <a href="#mab63" id="mab63"></a>

Socialized Loss occurs when the losses sustained on a platform are shared among all the deposits and/or positions of the users. It only happens when the leveraged losses in a particular market are greater than the token balance of the Insurance Fund, meaning that deleveraging was not sufficient to ease the outstanding debt.&#x20;

In such a scenario, the losses incurred are shared among participants: Perpetual Traders are paid pro-rata (by base amount) by all open positions.


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