Auto-Deleveraging (ADL) refers to a forced liquidation mechanism for counterparties that is adopted to control the overall risk of the platform when extreme market conditions or force majeure events lead to an insufficient risk fund or a rapid decrease in the risk fund amount.
Advantages of the ADL Mechanism:
- Prevents breach of margin: During sharp market fluctuations, positions of highly profitable users are reduced to offset losses, preventing the spread of systemic risks.
- Protects user funds: The auto-deleveraging mechanism allows the platform to more effectively protect user funds and prevent significant losses due to market fluctuations.
- Ensures platform stability: Maintains the balance and stability of the trading platform under extreme circumstances.
The ADL mechanism is turned off by default and can be activated if any of the following conditions are met:
-The risk fund incurs a total loss;
-The risk fund amount is less than or equal to 70% of the peak value within the past 8 hours.
At the same time, the platform may adjust in response to market dynamics. Once the ADL is triggered, the platform will no longer choose to place market orders to match users' forced liquidation positions. Instead, it will directly find the top-ranked counterparty positions and trade with them at the marked price at that time, without charging a transaction fee. After this trade is completed, the relevant futures positions will be deducted, and the profits from the positions will be converted into the account balance.
Once the user's position is automatically reduced, they will receive a notification that clearly states the reduced position and the price at which it was reduced. They can also check the details of this auto-deleveraging in the "Position History" page, where the order type will be marked as "Auto-Deleveraging."
To stop ADL, both of the following conditions must be met:
-Risk fund amount is greater than or equal to 5000 USDT;
-Risk fund amount is greater than or equal to 75% of the peak value in the past 8 hours.
The counterparty ranking in ADL are determined based on account risk or position risk and the return rate of the futures position. The specific rules are as follows:
| Position Mode | Leverage Profit Calculation | Counterparty Ranking Rules |
| Cross-Margin with Multiple Coins |
Profitable Position: Leverage Profit = Position Profit Rate / Account Margin Rate Loss Position: Leverage Profit = Position Profit Rate * Account Margin Rate |
Sorted by Leverage Profit from high to low In this case, profitable positions are ranked before loss positions because the profit rate of loss positions is negative. |
| Cross-Margin with Single Coin |
Profitable Position: Leverage Profit = Position Profit Rate / Account Margin Rate Loss Position: Leverage Profit = Position Profit Rate * Account Margin Rate |
Sorted by Leverage Profit from high to low In this case, profitable positions are ranked before loss positions because the profit rate of loss positions is negative. |
| Isolated Margin |
Profitable Position: Leverage Profit = Position Profit Rate / Position Margin Rate Loss Position: Leverage Profit = Position Profit Rate * Position Margin Rate |
Sorted by Leverage Profit from high to low In this case, profitable positions are ranked before loss positions because the profit rate of loss positions is negative. |
High-profit users may face automatic deleveraging during extreme market volatility, which can affect their earnings. When engaging in high-leverage trading, users need to pay more attention to risk management to avoid holding positions with excessive leverage in highly volatile markets, thereby reducing the risk of being subject to automatic deleveraging.
Users can assess the risk of automatic deleveraging they face in real-time through the signal light on the page. This signal light consists of 5 segments: when all 5 segments are lit, it indicates that the position is ranked high among counterparties, with a higher risk of auto-deleveraging; whereas, if only 1 segment is lit, it suggests that the position is ranked lower among counterparties, indicating a relatively lower risk of auto-deleveraging.
The ADL mechanism plays a crucial role in risk management during extreme market conditions, but users must also be mindful of risk control and use leverage wisely to reduce the likelihood of triggering the ADL mechanism. To avoid being affected by the ADL mechanism, users are advised to:
- Reduce leverage: Avoid trading with excessively high leverage.
- Set stop losses: Set stop-loss positions in trades to prevent excessive losses.
- Diversify risks: Avoid investing all funds in a single high-risk position.