Futures

Introduction to Auto-deleveraging (ADL)

2024-02-01 03:000173

Auto-deleveraging (ADL)

Auto-deleveraging, abbreviated as ADL, refers to a mechanism for the liquidation of counterparty positions to control overall risk when extreme market conditions or force majeure situations lead to insufficient risk provision or a rapid decline in risk provision. Insufficient and Rapid Decline will be clarified here.

When will ADL be triggered:

Risk provision is used up.

Risk provision drops by 30% from the peak.

When will ADL be terminated:

Risk provision recovers to 90% of its peak.

The platform may adjust risk provision according to market conditions in the future. After ADL is triggered, the platform will no longer place open orders on the market to liquidate or partially liquidate users' positions but will directly find the counterparty account with the highest ranking and trade at the cost price with no transaction fee. After the transaction is completed, the counterparty futures position will be closed. Profits will be credited to the account balance. The platform won't spread out risks among other positions after using auto-deleveraging to tackle collateral shortfall.

Counterparty ranking rule

ADL's counterparty ranking is determined by factors including account risk or position risk and the ROI of the futures position. Details are as follows.

Ranking will be based on margin trading ROI. Profitable positions are ranked before the loss-making positions.

Calculation of margin trading ROI

If positions of the coin pair have a negative profit or are fully or partially liquidated, the margin trading ROI is zero.

Cross:

Margin trading ROI = position ROI × leverage

Position ROI = unrealized PnL ÷ position value calculated at entry price

Position value calculated at entry price = quantity × average price

Leverage = the total value of all positions ÷ (total balance + unrealized PnL under cross margin mode)

Isolated:

Margin trading ROI = position ROI × leverage

Position ROI = unrealized PnL ÷ position value calculated at entry price

Position value calculated at entry price = quantity × average price

Leverage = position value ÷ (margin + unrealized PnL)

According to the above rules, the higher the margin profit and the position leverage, the more likely the account to be used as ADL counterparty, facing the risk of automatic deleveraging. Users can see their ADL risk level in real-time through the signal lights on the page. The signal light has five levels. When all five lights are on, it means that the counterparty ranking of this position is the highest, and the ADL risk is also the highest; when only one light is on, it means that the counterparty ranking of the position is the lowest and the ADL risk is also the lowest.

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After ADL is triggered, users will receive email notifications about related positions and prices details. Users can also head to the transaction history page to check orders tagged with ADL.