What Is Auto-Deleveraging?
Auto-Deleveraging (ADL) is a last-resort mechanism used to protect the platform and its users when a liquidated position cannot be closed through the normal process of selling on the market. Instead, ADL automatically reduces the positions of traders who are on the winning side of the trade.
This only happens when both of the following are true:
A liquidated position leaves a negative balance (i.e., more was lost than the margin could cover).
There is not enough money in the insurance fund to cover that shortfall.
In other words, ADL exists to make sure the system remains balanced—even in highly volatile conditions.
When Does ADL Happen?
ADL is rare. It only triggers when there is no other way to safely exit a liquidated position. For example, in fast-moving markets with low liquidity, the price might slip too far before the system can close the position. If that results in a loss greater than the trader’s collateral—and the insurance fund doesn’t have enough to cover it—ADL is used.
Who Is Affected?
Only traders with profitable positions on the opposite side of the liquidated trade are affected. Among those, ADL selects participants based on two factors:
Leverage used: Higher-leverage positions are prioritized for deleveraging.
Profitability: More profitable positions are higher on the list.
This means that if you’re trading with low leverage or your position is not very far in profit, you’re less likely to be affected by ADL.
How Does It Work?
If ADL is triggered, here’s what happens:
The system identifies the opposite side of the liquidated trade (e.g., if the liquidated position was long, ADL looks at short positions).
It ranks those traders by leverage and profitability.
It closes part or all of their position at the bankruptcy price of the liquidated position (the price at which their margin was fully used up).
The affected traders are notified, and their realized profit/loss is updated based on the adjusted position.
Example
Alice opens a long position with 10x leverage. Bob opens a short position with 20x leverage. The market moves sharply upward. Bob's short position is liquidated, but his collateral isn’t enough to cover the full loss.
The insurance fund also doesn’t have enough to pay for the remaining gap.
The system selects the most profitable traders with the highest leverage on the opposite side — in this case, Alice — and reduces or closes part of her position to cover Bob’s loss.
Alice’s position is partially closed, even though she was winning. This is ADL.
In Other Words
Suppose a highly leveraged trader is long on a contract, and their position is liquidated because the market moves against them. If their remaining collateral is not enough to cover the loss, and if the insurance fund is insufficient, the platform must immediately cover the gap. In this case, the system automatically selects traders with opposing positions — usually those with the highest leverage and profit — and reduces or closes their positions to maintain balance in the market.
This process is not based on performance or mistakes of the affected trader. It is triggered purely to protect the market’s integrity and ensure all trades remain fully backed. While this may seem unfair, ADL exists to prevent broader issues like system imbalances, cascading liquidations, or halted withdrawals due to unfilled gaps.
How to Reduce Your ADL Risk
While you can't fully avoid the possibility of ADL, you can lower your chances of being affected:
Use lower leverage whenever possible.
Manage your open positions—locking in profits and reducing exposure during volatile periods.
Stay aware of market conditions—extreme volatility increases the risk of system-wide stress.
Summary
ADL is a protective tool used only in rare, high-risk situations when liquidated positions can’t be closed safely through normal trading. It helps prevent systemic losses but may impact some highly leveraged and profitable traders on the opposite side of a failed liquidation.