How does Auto-deleveraging (ADL) work?

Important: Perpetual futures trading is high risk and only available to eligible professional investors in select locations and subject to regulatory approval. Perpetual futures are not available in Hong Kong or to Hong Kong users.

Auto-deleveraging (ADL) is a process used in perpetuals trading when a trading account reaches the Defaulted Margin Requirement state. Before the account is allowed to go into Default, all open perpetual positions will be auto-leveraged. It is done to unwind positions that cannot be closed on the market despite offering an attractive price. The exchange system finds counterparties and forces them to unwind enough of their positions.

The method for choosing ADL Position Counterparties may change with notice. Currently, it is applied to accounts with opposite positions, prioritizing those with the highest ratio of Initial Margin to Margin. This method targets the most levered accounts.

During ADL, the counterparty's position sizes are reduced and their unsettled profits and losses are adjusted as if they had placed maker orders at the current Mark Price. The account facing auto-deleveraging pays the standard taker fee and an additional liquidation fee. If the account does not have a balance of the settlement asset, the exchange may convert the liquidation fee into another asset that the account holds.

If the account facing auto-deleveraging has an unsettled loss, certain accounts called ADL Profit Counterparties are chosen to offset the loss. Their unsettled profits are reduced by the same amount as the account's unsettled loss. These unpaid settlement amounts are still owed by the defaulted account holder to the ADL Profit Counterparties. Once the account debts are fully repaid, the ADL Profit Counterparties receive their unpaid profits.

The method for choosing ADL Profit Counterparties may also change with notice. Currently, accounts with unsettled profits for the specific contract are divided into two groups: those with positions opposite to the account facing auto-deleveraging and those with flat positions. The account's unsettled loss is offset against counterparties from the first group in decreasing order of the amounts = (Unsettled profits/ Absolute position size) x (Initial Margin/ Margin). If there is still an unsettled loss, counterparties from the second group are chosen based on their unsettled profits.

Once ADL is completed, accounts will be moved into Default according to the Default process under the Margin service.

Was this article helpful?
0 out of 0 found this helpful