Auto-Deleveraging (ADL)
Auto-Deleveraging (ADL) is a last-resort risk management mechanism that activates only when liquidation losses cannot be fully absorbed by trader margin and the insurance fund.
When ADL Is Triggered
ADL is triggered when:
Liquidation execution prices are worse than bankruptcy prices, and
The insurance fund is depleted faster than a predefined safety threshold
ADL is not part of normal trading operations and occurs only under extreme market conditions.
How ADL Works
When ADL is activated:
Positions on the opposite side of the liquidated trade are reduced
Reductions begin with traders who have the highest ADL priority
Positions may be partially or fully reduced
Affected traders may immediately re-enter the market after ADL occurs.
ADL Priority Ranking
Not all traders are affected equally by ADL. Positions are ranked based on profit and leverage.
ADL Ranking Logic
For profitable positions ADL Rank = Profit Percentage × Effective Leverage
For unprofitable positions ADL Rank = Profit Percentage ÷ Effective Leverage
Variable Definitions
Effective Leverage = |Mark Value ÷ (Mark Value − Bankruptcy Value)|
Profit Percentage = (Mark Value − Average Entry Value) ÷ |Average Entry Value|
Mark Value = Position value at mark price
Bankruptcy Value = Position value at bankruptcy price
Average Entry Value = Position value at average entry price
ADL Risk Indicator
The AZX trading interface displays an ADL risk indicator for each position.
The indicator reflects the trader’s relative ADL ranking
Rankings are displayed in 20% increments
More illuminated segments indicate higher ADL risk
Positions with most or all segments lit are more likely to be affected during an ADL event.
Reducing ADL Risk
Traders can reduce ADL exposure by:
Using lower leverage
Taking profits periodically
Maintaining sufficient margin
Monitoring margin ratio and liquidation price
ADL vs Forced Liquidation
Forced liquidation applies to losing positions that cannot maintain maintenance margin. ADL applies to profitable, highly leveraged positions only when all other risk buffers have been exhausted.
Both mechanisms are essential to maintaining system integrity.
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