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 ADL sequence is determined by a combination of profit and leverage size.
The higher the profit and the greater the leverage used, the higher the priority of the position being auto-deleveraged. All positions are ranked from highest to lowest for long and short positions separately. The ranking calculation is as follows:
Priority = Profit Percentage × Opening Leverage
Where:
Opening Leverage: The leverage set when first opening the position (a weighted average if a position is opened multiple times). Calculated as the sum of the value of multiple openings divided by the sum of the initial margin for those openings.
PNL Percentage = (Mark Value - Average Entry Value) ÷ Initial Margin
Initial Margin = Position Value / Opening Leverage
Nominal Position Value: Value of the position calculated at the current mark price.
Average Entry Value: Value of the position calculated based on the average opening price.
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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