ADL (Auto Deleveraging)

Auto-Deleveraging (ADL) refers to a forced liquidation mechanism adopted by the platform to control the overall risk of the platform when the counterparty position is insufficient, extreme market conditions or force majeure factors cause the insurance fund to drop rapidly. When ADL is triggered, the ADL engine will select users with the highest leverage return rate on the platform to reduce their positions.

What is ADL?

ADL (Auto-Deleveraging) is a risk control mechanism that helps the platform automatically reduce the positions of users on the opposite side when the insurance fund is exhausted. The essence of the ADL system is to choose users from the counterparty who should share the unfilled loss through the counterparty position queue that tracks the profit and leverage of each user.

How is ADL triggered?

ADL is only triggered when an underwater position (a position where unrealized losses exceed the margin) cannot be liquidated in the market at a price better than the bankruptcy price, and the insurance fund is insufficient to cover the loss. In this case, the positions of profitable traders on the opposing side will be automatically deleveraged to cover the deficit.

ADL queue calculation

ADL Score

Each user will have an ADL score for their positions. This score is a combined measure of profit and leverage. Users with higher ADL scores will be given priority for auto-deleveraging. The basic principle is that users with higher profits and higher leverage will be deleveraged first.

The ADL score is calculated based on the following formula:

ADL Score = Profit Percentage * Leverage

Where:

• Profit Percentage = Unrealized PnL / Margin
• Leverage = Position Value / Margin

ADL Queue

All users on the platform are sorted by their ADL scores, forming an ADL queue. When ADL is triggered, the system will start from the user with the highest ADL score in the queue and execute auto-deleveraging until enough positions have been deleveraged to cover the deficit.

ADL Indicator

To help users understand their risk of being auto-deleveraged, the platform displays an ADL indicator for each position. The indicator consists of five lights, where:

• If all five lights are on, the user's position is among the top 20% of the ADL queue, and has a high risk of being deleveraged.
• If four lights are on, the user's position is among the top 20-40% of the ADL queue.
• If three lights are on, the user's position is among the 40-60% of the ADL queue.
• If two lights are on, the user's position is among the 60-80% of the ADL queue.
• If one light is on, the user's position is among the bottom 20% of the ADL queue, and has a low risk of being deleveraged.

How to avoid being deleveraged?

To reduce the risk of being auto-deleveraged, users can take the following measures:

1. Maintain a lower leverage: The higher the leverage, the higher the risk of being deleveraged.
2. Take profits regularly: High profit positions have a higher priority for deleveraging.
3. Pay attention to the ADL indicator: If your position shows multiple lights on the ADL indicator, consider reducing your position size or leverage.
4. Stay alert during extreme market conditions: When the market experiences extreme volatility, the likelihood of ADL being triggered increases significantly.

ADL trading rules

When ADL is triggered, the following rules apply:

1. The matching price for auto-deleveraging trades is the bankruptcy price of the liquidated position.
2. Auto-deleveraged trades do not incur trading fees.
3. The system will execute deleveraging in order of ADL queue priority until the deficit is covered.
4. Users cannot opt out of the ADL mechanism when trading on the platform.

Special circumstances

In some extreme market conditions, such as a market moving too quickly or a significant gap between trading sessions, the platform may need to use more aggressive risk control measures beyond the ADL system. In such cases, the platform reserves the right to implement additional risk management procedures.