What is Auto-Deleveraging (ADL)?
Auto-Deleveraging (ADL), commonly known as Automatic Deleveraging, is a mechanism employed during extreme market conditions where a significant number of liquidations occur, causing a rapid decrease in the insurance fund. Its purpose is to safeguard the platform and users. The ADL system is designed to reduce the positions of traders holding positions in the opposite direction to ensure that liquidation orders can be executed promptly, thus preventing further losses from escalating.
In this context, "extreme market conditions" refer to instances where the index price experiences rapid fluctuations beyond a specified threshold within a short period. The "rapid decrease in the insurance fund" occurs when the insurance fund drops by a certain percentage from its peak value within a defined timeframe or when the fund's assets incur losses beyond a specific threshold, triggering the ADL process.
Once ADL is triggered, the system takes over the accounts and, instead of placing the liquidation orders in the market for execution, it directly matches them with accounts having a higher priority based on the opposing side of the trade at the mark price. Upon execution, the corresponding contract positions in the prioritized accounts are reduced, and any unrealized profits from those positions are realized.
The auto-deleveraging process unfolds in the following manner:
- The platform constantly ranks users based on their priority for auto-deleveraging, considering the profitability and actual leverage of their positions.
- When ADL is activated, accounts with higher priority are selected first, and their positions are deleveraged at the mark price.
- Users who undergo auto-deleveraging receive email notifications detailing the reduced positions and the deleveraging price. They can also access this information in the order history, marked as "Auto-Deleveraging" transactions.
In highly exceptional market situations, even after the triggering of ADL within a settlement period, some accounts continue to be taken over. The system proceeds with ADL to reduce positions in these accounts, and losses resulting from these deleveraging actions are partially borne by the opposing accounts to ensure the safety of the platform and all users.
Priority Ranking Calculation
Deleveraging priority is calculated by profit and leverage.
The ranking is calculated as follows:
Based on margin profit, from the largest to the smallest. The rate of return on loss-making positions is negative, and profitable positions are ranked in front of the loss-making positions.
Profitable position: Margin profit = position return rate/position margin ratio
Loss-making position: Margin profit = position return rate * position margin ratio
Traders may reduce the leverage size or close part of the profited position to lower the risk of being deleveraged.
Once you are de-leveraged, a notification will be sent to you and the open orders will be canceled. You’re free to re-enter the position after that.