What is ADL auto-deleveraging?

What is ADL auto-deleveraging?

*definition

Auto-DeleveragingL, referred to as ADL. It refers to a counterparty forced liquidation mechanism adopted when extreme market conditions or force majeure factors lead to insufficient or rapid decline in risk protection funds, in order to reduce the risk of positions being liquidated and triggering serial liquidations in the market, and to control the overall risk of the platform. That is, after triggering, if liquidation occurs again, the liquidation order received by the system will be liquidated using the ADL automatic lightening mode until the balance of the risk protection fund is restored.

*Determine whether to execute ADL

Whether a trader's account position is selected for automatic lightening is ranked according to the amount of leverage income of its profitable positions. All profitable positions are ranked based on the amount of leverage income of their positions. The amount of leverage income reflects the size of the position's income when using leverage. The larger the amount, the higher the income and the greater the leverage. It is calculated using the position rate of return and the position margin rate.

Leverage income = position return rate ÷ position margin rate
Only profitable positions participate in the calculation of rankings. After ranking all profitable position accounts according to the amount of leverage income from large to small, all account positions are divided into 5 parts according to the ranking, and every 20% is one part. The number of each part is divided by rounding up. Whole, example: There are 9 profitable positions to rank, which are divided into five parts: 2, 2, 2, 2, and 1.

*The role of ADL

During the period when future trading risk control enters the automatic position reduction mode, after all traders have liquidated their positions, the platform will take over the liquidated position orders and directly conduct automatic liquidation transactions in the accounts of traders holding opposing profitable positions in the market at the marked price at the time of takeover.

That is, if you hold a long position, you will lose money and liquidate it, and if you hold a short position, you will make a profit. In the ADL automatic position reduction mode, after the long order is taken over, it is necessary to sell and close the position, and directly buy and close the profitable short position. The two will be matched and traded at the future mark price at the time of the takeover, and the profits and losses of both parties will be settled. Vice versa.