Auto-Deleveraging (ADL)

IBITTERS,

What is Auto-Deleveraging (ADL)?

Auto-Deleveraging (ADL) is a risk control mechanism used by trading platforms during extreme market conditions or when insurance funds are insufficient. It forcibly reduces positions of counterparties to manage overall platform risk.

How ADL Works:

1.When a user is liquidated, their remaining position is taken over by the system.

2.If the position cannot be liquidated in the market and the mark price hits the bankruptcy price, ADL is triggered.

3.Instead of placing orders in the market, the system matches the liquidated position directly with counterparties.

Counterparty accounts with higher profitability and higher leverage are prioritized in the ADL sequence. After the process, the counterparty’s position is reduced, and their profit is added to their account balance.

Platforms using ADL do not redistribute losses after addressing bankruptcy losses via this mechanism.

ADL Priority Ranking

The priority of being selected for ADL is based on a combination of profit levels and leverage ratios. Traders with higher profits and leverage are more likely to be liquidated first. Unlike standard liquidations, users don’t lose money; instead, they realize profits. If your position is liquidated, you can immediately re-enter a new position.

ADL Indicator

It’s important to note that the liquidation price may not align with the current market price of the contract. Users are strongly advised to monitor the ADL Indicator, which displays their priority for ADL events, to avoid unexpected liquidation.

•High Risk: Accounts with higher returns and lower margin ratios are more likely to be counterparties in ADL.

•Indicator Lights: The ADL risk is visualized with five lights.

•All 5 Lights On: High risk of being liquidated.

•1 Light On: Low risk of being liquidated.

ADL Rules

The ADL counterparty ranking is determined based on account risk or position risk combined with the return rate of the contract position.

• Isolated Margin Mode

Profitable Positions: Leverage Gain = Position Return Rate ÷ Margin Ratio

Losing Positions: Leverage Gain = Position Return Rate × Margin Ratio

• Cross Margin Mode

Profitable Positions: Leverage Gain = Position Return Rate ÷ Account Margin Ratio

Losing Positions: Leverage Gain = Position Return Rate × Account Margin Ratio

ADL Process

If the insurance fund is insufficient during liquidation, ADL is triggered. Counterparties are ranked by their effective PNL and leverage, prioritizing aggressive and highly profitable strategies.

•Isolated Margin Mode: Long and short positions are calculated separately.

•Cross Margin Mode: Net positions are used for calculations.

Example:

If you hold 100 long contracts and 300 short contracts, the net position is 200 short. ADL ranking is based on short positions. If the counterparty’s long position is liquidated, it affects your position, but if the counterparty’s short position is liquidated, it does not.

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