ADL

What is Auto-Deleveraging?

ADL is a safety mechanism used by trading platforms to manage risk during volatile market conditions. When a trader's position loses value and puts the platform at risk, ADL can automatically sell off some of the trader's assets to limit the potential loss.

ADL ranking

The ranking of ADL is based on the leverage return of the position (profit and loss ratio and effective leverage used). The greater the leverage return, the higher the ranking. The traders with the highest ranking in the system will be selected first by the ADL engine.

Traders can check the priority level of the current position in the automatic deleveraging sequence through the "Auto-deleveraging indicator light". There are 5 indicator lights in total. The more lights on, the higher it is in the ranking(from green to red).

ADL trigger

After ADL triggers, the platform identifies the top-ranked account based on leverage exposure. It then executes a transaction with this account at a new price derived from the bankruptcy price and insurance fund compensation.

For isolated positions, both long and short are susceptible to ADL transactions.

Under cross-margin mode, fully hedged positions are exempt from ADL selection. However, if positions are partially unhedged, the unhedged portion may be affected by ADL, while the hedged part remains unaffected.

Positions subject to ADL do not incur any handling fees.

The key points covered are the account selection criteria, pricing mechanism, isolated vs cross-margin position treatment, and the fee exemption for ADL transactions.

ADL completed

When the user's position is automatically reduced, the relevant contract position of the account is reduced, and the profit from the position is converted into the account balance.

Traders will receive SMS or email notifications informing them of the reduced positions and the reduction price. At the same time, they can also find the record marked as "ADL" on the historical order page.

After ADL is completed, traders are free to re-enter the market for trading.

How to reduce the risk of auto-deleveraging?

ADL is an exceptional risk management measure that is triggered only under extreme market conditions. During regular trading periods, traders need not be concerned about being selected by the ADL engine. However, if extreme market circumstances arise and traders wish to mitigate the risk of being selected for ADL, they can consider the following steps:

1. Reducing the leverage employed in their positions will immediately lower their priority in the ADL queue.

2. While partially closing profitable positions will not directly reduce their position in the ADL queue, it will decrease the overall size of their positions that are subject to potential ADL, thereby limiting the associated risk.

In essence, lowering leverage brings an immediate reduction in ADL priority, while scaling down position sizes through partial profit-taking limits the exposure to ADL, even though it does not directly impact the queue ranking.