What is Auto-Deleveraging (ADL)?
Auto-Deleveraging (ADL) is a mechanism used to control overall platform risk by forcibly liquidating counterparty positions when extreme market conditions or force majeure events occur, leading to insufficient Insurance Fund coverage.
Conditions for Triggering ADL
- A large number of positions are liquidated, causing significant contract losses for the platform.
- The Insurance Fund is insufficient to cover potential losses from liquidation.
How ADL Works
1.Selection for Deleveraging: ADL ranks counterparties based on account risk, position risk, and the profitability of the contract position. Users can monitor their ADL risk in real-time through an indicator light.
2.Deleveraging Process: When a trader is selected by the ADL system, unfilled orders are canceled, and the system forcibly matches the position at the bankruptcy price. If the trader is partially deleveraged, the remaining position size is reduced, and their ranking in the ADL queue decreases.
Note: For Cross Margin users who have not set leverage limits, the system will default to the maximum leverage of the position.
Example
Assume a user uses 10,000 USDT as margin in Isolated Margin mode with 50x leverage to buy 5,000 BTCUSDT perpetual contracts.
- The estimated liquidation price is 9,000 USDT, and the bankruptcy price is 8,500 USDT.
- When the market price drops to 9,000 USDT, forced liquidation is triggered, and the system places an order at the bankruptcy price of 8,500 USDT.
- If the market price is better than the bankruptcy price of 8,500 USDT, the remaining margin is added to the Insurance Fund.
- If the market price is worse than the bankruptcy price of 8,500 USDT, the DeeBit Exchange Insurance Fund covers the loss to ensure smooth liquidation.
- If the market cannot execute at the bankruptcy price of 8,500 USDT and the Insurance Fund cannot cover the loss, the system will initiate Auto-Deleveraging (ADL).
How to Avoid Auto-Deleveraging?
To reduce the risk of being deleveraged, traders can take the following measures:
- Lower Leverage: Reducing leverage decreases the priority of profitable positions in the ADL queue, lowering the likelihood of being deleveraged.
- Monitor the ADL Indicator: Use the ADL queue indicator to understand your position in the queue and adjust your positions accordingly. The indicator has 5 levels:
- All 5 levels lit: The position is at the top of the counterparty ranking, indicating high ADL risk.
- 1 level lit: The position is at the bottom of the counterparty ranking, indicating relatively low ADL risk.
Important Notes
- Under extreme market conditions, even positions with low leverage or losses may be selected for ADL.
- If your position is deleveraged, adjust your strategy promptly to avoid future occurrences.
The final interpretation of this product belongs to DeeBit Exchange.
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