ADL (Auto-Deleveraging), that is, the **auto-deleveraging mechanism**, is a core risk control tool designed by cryptocurrency contract trading platforms to deal with extreme market fluctuations. When there are drastic price fluctuations in the market, causing some traders to have their positions liquidated, and the platform's risk reserve funds (such as the insurance fund pool) are insufficient to cover the losses from liquidations that exceed the margin (i.e., the losses when the liquidation price is worse than the bankruptcy price), the system will forcefully liquidate the profitable positions in the opposite direction to make up for the losses, ensuring that the overall risk of the platform is under control.

 

The activation of ADL needs to meet the following core conditions:

When there are drastic fluctuations in market prices (such as sharp rises or falls in a short period), the positions of some traders are forcefully liquidated due to insufficient margin. If the liquidation price is worse than the bankruptcy price (that is, the actual loss exceeds the margin), losses from liquidations exceeding margin will occur.

The platform first uses the risk reserve funds to absorb the losses from liquidations exceeding margin. The risk reserve funds are composed of the platform's own funds and the remaining funds from forced liquidations.

When the risk reserve funds are exhausted or rapidly decline to the threshold, the system activates the ADL.

 

The liquidation order of ADL is strictly ranked by the platform's algorithm, with the core indicators being the **profit level** and the **leverage multiple**:

Unrealized profit and loss / Margin * Margin ratio. Traders with higher profits and higher leverage multiples will be liquidated first.

Suppose a sharp market decline causes a large-scale liquidation of BTC long positions. When the platform activates the ADL, short position users with a 10x leverage and a 50% profit will be preferentially deleveraged, while short position users with low leverage and low returns may be spared.

 

Position Screening: The system generates an ADL queue according to the priority rules, and profitable positions in the opposite direction (such as short positions during a sharp decline) enter the candidate pool.

Forced Liquidation: Forcibly liquidate the positions at the top of the queue at the bankruptcy price or the marked price, and the profit difference enters the insurance fund pool.

User Notification: Users whose positions are deleveraged will receive an email notification, and all active orders will be closed.

Profitable Users: Unrealized profits may be cleared to zero. For example, if a user holds a BTC short position with a 10x leverage, and the market crashes triggering the ADL, their position may be liquidated at the bankruptcy price, and the profit will be zero.

Losing Users: The losses from liquidations exceeding margin are covered jointly by the insurance fund and ADL, but they need to bear the uncertainty of the platform's risk control rules.

 

Check ADL Indicators: The platform displays the ADL risk level in the position interface.

Pay attention to platform announcements and regularly check for rule updates.

Reduce the Leverage Multiple: Reduce the position risk. For example, reducing the leverage from 10x to 5x can significantly reduce the ADL priority.

Diversify Positions: Avoid over-concentrating positions in a single contract to reduce the probability of triggering ADL due to the risk of a certain variety.

Close Positions in Advance: Actively reduce positions before drastic market fluctuations to avoid being passively triggered by ADL.

Use Hedging Tools: Hedge risks through a combination of strategies such as spot trading to reduce reliance on contracts.

 

ADL is the "last line of defense" for cryptocurrency contract trading. Its core value lies in **preventing systemic risks**, but it cannot completely eliminate individual losses. Users need to note:

ADL is Not Omnipotent: In extreme market conditions , ADL may not be able to cover all the losses from liquidations exceeding margin, leading to the suspension of trading on the platform.

Dynamic Adjustment of Rules: There are significant differences in the ADL mechanisms of different platforms, and trading strategies need to be adjusted according to the specific rules.

Principle of Risk Bearing: Even if ADL is triggered, users are still responsible for the losses of their positions, and the platform only provides a limited risk buffer.

 

It is recommended that traders strictly control their positions in contract trading, avoid relying on the ADL mechanism, and regularly check the platform documents to understand the latest risk control rules.