What is Auto-Deleveraging (ADL)?
Crypto markets are incredibly volatile - coin prices can swing over 80% in a year and moves of 5-10% in a single day are common. Perpetual futures magnify these risks by introducing leverage, which can lead to traders getting liquidated or their losses exceeding their deposits. In extreme cases, this can bankrupt the entire exchange - rendering it insolvent as was the case with the London Metals Exchange in March 2022 after a short squeeze on Nickel went wrong.
Thankfully, there is a solution! The crypto industry has adopted a solution called Auto-deleveraging (ADL), which is designed to automatically close a losing trader's position against a winning trader's position in the event that the losing trader is bankrupted. It is a method of last resort to protect every trader on the platform.
How can I tell if I was ADL’d?
If your account is selected for ADL, your account will lock for a few seconds - meaning you will not be able to place orders or transfer funds, then your working orders will be canceled, finally your account will unlock once the ADL process has finished. You can identify ADL trades in your trade history by the trade type “Auto-deleveraging”. They can also be found via API by checking for source “108”.
How does it work?
ADL is enforced equally for all traders on the platform, both on the liquidation side (losing side) and on the counterparty side (winning side).
ADL Triggers
If the Liquidation Engine cannot close a trader’s position by trading in the order book, then ADL will be triggered once the trader’s account reaches either of these 2 conditions:
1. Maintenance Margin / Collateral Balance > 12.5
2. Collateral Balance <= 0
Once one of these conditions are met, the Liquidation Engine will trigger the ADL process to close the trader’s positions.