# Auto-Deleveraging (ADL)
### **What is Auto-Deleveraging?**
**Auto-Deleveraging (ADL)** is a last-resort risk management mechanism used by the platform to maintain market stability. It is triggered in **extreme market conditions** when:
* A counterparty’s losses exceed the coverage of the **insurance fund**.
* The **liquidation engine** fails to close a liquidated position at or above the **bankruptcy price**.
* The platform faces position imbalances due to **extreme volatility**, liquidity shortages, or **force majeure**.
When ADL is triggered, the system forcefully reduces the positions of users **with the highest leverage and return**, executing their trades against liquidated counterparties.
### **ADL Ranking System**
Traders are **ranked for ADL** based on their **leverage-adjusted returns**.
#### ADL Priority Indicator
Each position has an **ADL indicator light**, ranging from **1 to 5 bars**:
* **More bars = Higher ADL risk**
* **5 bars = Top of the ADL queue**
#### ADL Sorting Rules
* If the position is **profitable**:
$$
\text{Ranking Score} = \text{Profit %} \times \text{Effective Leverage}
$$
* If the position is **losing**:
$$
\text{Ranking Score} = \frac{\text{Profit %}}{\text{Effective Leverage}}
$$
**Effective Leverage:**
$$
\text{Effective Leverage} = \left| \frac{\text{Mark Price}}{\text{Mark Price} - \text{Bankruptcy Price}} \right|
$$
### **Profit Percentage Formulas**
#### **Forward Contracts**
* **Long**:
$$
\text{Profit %} = \frac{\text{Mark Price} - \text{Entry Price}}{\text{Entry Price}}
$$
* **Short**:
$$
\text{Profit %} = \frac{\text{Entry Price} - \text{Mark Price}}{\text{Entry Price}}
$$
#### **Reverse Contracts**
* **Long**:
$$
\text{Profit %} = \frac{\text{Entry Price} - \text{Mark Price}}{\text{Entry Price}}
$$
* **Short**:
$$
\text{Profit %} = \frac{\text{Mark Price} - \text{Entry Price}}{\text{Entry Price}}
$$
### **When is ADL Triggered?**
When a **liquidated position** cannot be closed at or above the **bankruptcy price**, even after using **insurance fund compensation**, the platform activates the **ADL engine**.
* The ADL system selects top-ranked counterparties from the **opposite direction** to match and settle the position.
* ADL executes trades **at the post-compensation price**.
#### Margin Modes:
* **Isolated Margin**: Long and short positions may both be subject to ADL.
* **Cross Margin**: Only **unhedged** portions of positions are subject to ADL. **Fully hedged** positions are **not affected**.
> ⚠️ **No trading fees** are charged for positions closed via ADL.
### **ADL Execution & Notifications**
Once ADL is completed:
* The corresponding position is **closed**.
* The profit from the position is **added to the account balance**.
* Users receive **email/SMS notifications**.
* A record labeled **"ADL"** appears in the trade history.
* Users are **free to re-enter the market**.
### **Example: BTC/USDT Contract**
* **Trader Balance**: 10,000 USDT
* **Position**: Long 5 BTC at 20,000 USDT with 10× leverage
* **Liquidation Price**: 19,090 USDT
* **Bankruptcy Price**: 19,000 USDT
* **Post-Insurance Price**: 18,090 USDT
If the liquidation engine cannot close the position at or above **18,090**, the **ADL system takes over**.
Assuming the platform has **5 short (opposite) positions**, here’s how ADL prioritizes them:
| User | Short BTC | ADL Ranking Score | ADL Rank Tier |
|---|
| A | 3 | 5 | Top 0–20% (🟧🟧🟧🟧🟧) |
| B | 3 | 4 | Top 20–40% (🟧🟧🟧🟧) |
| C | 2 | 3 | Top 40–60% (🟧🟧🟧) |
| D | 2 | 2 | Top 60–80% (🟧🟧) |
| E | 3 | 1 | Top 80–100% (🟧) |
→ **User A’s 3 BTC** and **User B’s 2 BTC** are used to absorb the liquidated long.\
→ **User B’s remaining 1 BTC** is not affected.
### **Reducing ADL Risk**
While ADL is rare and only triggered during **extreme volatility**, traders can reduce ADL risk by:
* **Lowering leverage**: Reduces ADL rank instantly
* **Reducing position size**: Especially helpful for highly profitable positions
* **Using cross-margin hedging**: Fully hedged positions are **ADL-protected**
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