Auto-Deleveraging (ADL) is a mechanism used to protect the exchange and solvent traders from losses that may occur when a liquidated position cannot be closed out in the market.
How Auto-Deleveraging Works
When a trader's position is liquidated and the Liquidation Engine is unable to close the position at or better than the bankruptcy price, the Insurance Fund is used to cover the losses. In rare cases, if the Insurance Fund is insufficient, the ADL system will automatically reduce the positions of profitable traders to cover the outstanding losses.
The price at which a deleveraged trader's position is closed out is the bankruptcy price of the initial liquidated order.
ADL Priority Deleveraging Ranking
The Delev. column in your Positions widget indicates your position in the ADL queue.
The rectangles are shown in 20% increments, and if all are lit, your position is in the top percentile and at the highest risk of being auto-deleveraged. If you are deleveraged, you will be sent a notification. Open orders will be cancelled, and you are free to re-enter.
Priority Ranking Calculation
Deleveraging priority is calculated based on profit and leverage. Traders with the highest profit and leverage in the opposite direction of the liquidated trade are deleveraged first.
The ranking calculation is as follows:
Ranking if PNL percentage > 0 = PNL Percentage * Effective Leverage
Ranking if PNL percentage < 0 = PNL Percentage / Effective Leverage
where
-
Effective Leverage = abs(Mark Value) / (Mark Value - Bankrupt Value) -
PNL Percentage = (Mark Value - Avg Entry Value) / abs(Avg Entry Value) -
Mark Value = Position Value at Mark Price -
Bankrupt Value = Position Value at Bankruptcy Price -
Avg Entry Value = Position Value at Average Entry Price
The system ranks long and short positions separately, from highest to lowest score.
Example of Auto-Deleveraging and the Ranking System
Assume there are 6 long positions, and their effective leveraged PNL scores have been calculated. A higher PNL Ranking indicates higher priority for deleveraging.
| Account | Quantity | PNL Ranking |
|---|---|---|
| 1 | 10 | 3 |
| 2 | 10 | 6 |
| 3 | 20 | 1 |
| 4 | 30 | 4 |
| 5 | 20 | 5 |
| 6 | 10 | 2 |
The system ranks these positions from the highest score to the lowest and calculates the percentile associated with that position:
| Account | Quantity | PNL Ranking | Percentile |
|---|---|---|---|
| 2 | 10 | 6 | 20% |
| 5 | 20 | 5 | 40% |
| 4 | 30 | 4 | 60% |
| 1 | 10 | 3 | 80% |
| 6 | 10 | 2 | 80% |
| 3 | 20 | 1 | 100% |
In the event of a liquidation, those users in the top percentiles will be deleveraged first. For example, if a short position with a size of 20 contracts is liquidated with a bankruptcy price of USD 650:
- Accounts 2 and 5 will be deleveraged at the bankruptcy price of USD 650
- Account 2 will have their entire position of 10 contracts closed, while the remaining 10 contracts from the short liquidation will be assigned to account 5
- Account 5 will have 10 contracts remaining (from 20). Depending ont their effective leverage, account 5 may remain in the lowest quintile
- Both users will be notified and allowed to re-enter their positions