Auto-Deleveraging (ADL)
What is Auto-Deleveraging (ADL)?
When a position is taken over by the liquidation system and closed at a price worse than its bankruptcy price, the insurance fund is used to cover the resulting deficit. If the insurance fund is insufficient, the Auto-Deleveraging (ADL) system is activated. This system reduces the positions of traders holding opposite positions, starting with those who have the highest profit and leverage, at the bankrupt price of the position being liquidated.
ADL ensures that traders being liquidated do not lose more than their initial margin. It also avoids the inflexibility of socialized loss mechanisms that disadvantages lower-risk traders.
Calculating Auto-Deleveraging Priority
The Auto-Deleveraging (ADL) sequence determines the order in which positions are forcefully liquidated, based on the Position Return Rate and Effective Leverage.
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For profitable positions:
ADL Score = Position Return Rate × Effective Leverage -
For losing positions:
ADL Score = Position Return Rate ÷ Effective Leverage
Where:
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Position Return Rate = Unrealized PnL of the contract ÷ Average Entry Value of the contract
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Effective Leverage = Position Value ÷ Effective Margin
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The Position Value is calculated based on the Mark Price
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Isolated Effective Margin = Isolated Position Margin + Unrealized Profit
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Cross Effective Margin = Cross Margin Balance
In profitable positions, a higher ADL Score indicates higher priority in the deleveraging sequence.
In losing positions, a smaller absolute ADL Score indicates higher priority in the deleveraging sequence.
Understanding Your ADL Queue
An indicator shows your position within the Auto-Deleveraging (ADL) queue.
The indicator has five levels, with each illuminated level representing a 20% increase in your priority.
When all five levels are lit, your position ranks in the top 20% of the ADL queue. This means that if a liquidation event occurs and the insurance fund cannot cover the losses, your position may be subject to auto-deleveraging.
To lower the risk of being auto-deleveraged, traders can reduce their leverage or partially close profitable positions, depending on their standing in the ADL queue.
If your position is auto-deleveraged, you will receive a notification from the system. All open orders will also be canceled automatically, and you can choose to open new positions again afterwards.
Important Note: ADL prioritizes reducing profitable positions over losing ones, but losing positions can still be subject to auto-deleveraging.
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