I. What Is ADL?

Auto-deleveraging (ADL) is a mechanism of liquidating counterparty positions to minimize the platform's overall risk. ADL is only carried out in the event of depletion or rapid drawdown of the insurance fund, which may occur due to extreme market conditions or force majeure. If the insurance fund undergoes an abnormal drawdown and is no longer able to effectively absorb market risk, the ADL mechanism will be activated. ADL is designed to mitigate systemic risk and protect both user assets and platform capital.

II. How ADL Is Executed

Once ADL is triggered, the platform will directly locate the counterparty accounts of the highest ranks and trade liquidation or position-reduction orders with them, instead of matching these orders with market orders and awaiting them to be filled. Thus, after the transaction, the counterparty positions will be reduced, and the funds from the closed positions will be added to their account balances. After using the ADL mechanism to handle negative equity, no further socialized loss allocation will occur.

ADL Settlement

Once ADL is triggered, the counterparty position ranking is determined jointly by traders' account/position risk level (margin ratio) and position PnL ratio.

Details are as follows:

Isolated Margin

Gaining position: Leveraged PnL = PnL ratio of the position / Margin ratio of the position

Losing position: Leveraged PnL =PnL ratio of the position * Margin ratio of the position

Cross Margin

Gaining position: Leveraged PnL = PnL ratio of the position / Margin ratio of the account

Losing position: Leverage PnL =PnL ratio of the position * Margin ratio of the account

According to the above settlement rules, accounts with a higher PnL ratio and lower margin ratio are more likely to be identified as a counterparty for auto-deleveraging and face the auto-deleveraging risk. When a user's position is auto-deleveraged, they will receive an SMS and email notification showing the reduced position and the deleveraging price. The deleveraging record can also be viewed on the Order Center page, with the record type labeled as “ADL”.

III. How ADL Settlement Price Is Determined

When ADL is triggered, the system uses a risk control mechanism to match relevant counterparty positions against high-risk liquidation orders. These transactions are executed at the bankruptcy price of the liquidation order. The bankruptcy price refers to the price at which the liquidated user’s margin balance reaches zero.

Note: During periods of high market volatility, the bankruptcy price may deviate significantly from the prevailing market price. Users are advised to monitor the ADL indicator and proactively manage their position risk.

IV. How to Avoid ADL

1. Reduce positions appropriately to lower the Maintenance Margin.

2. Reduce leverage.

3. Enable hedge orders.

V. How to Predict ADL

When an order is placed, the ADL indicator is shown on the right side of the order. If all lights are on, it indicates that the order is more likely to trigger ADL. You can monitor your ADL risk in real time via the indicator. The indicator is designed with 5 grids. When all 5 grids are on, the trader's position is ranked among the highest and the ADL risk is high. When only 1 grid is on, the trader's position is ranked low and the ADL risk is very low.