Automatic Deleveraging (ADL) Rules Explained

Automatic Deleveraging (ADL) is a critical risk management mechanism in derivatives trading, especially during periods of extreme market volatility. While often mentioned alongside concepts like forced liquidation or margin calls, ADL operates as a special form of forced liquidation—activated only when standard risk controls are insufficient. This article breaks down how ADL works, who gets affected, and how traders can manage their exposure effectively.

What Is Automatic Deleveraging (ADL)?

In volatile markets, when a trader’s position becomes too risky—specifically when their maintenance margin ratio exceeds 100%—the platform triggers forced liquidation to protect both the user and the exchange. Normally, the system attempts to close the position via order book matching. However, if there's insufficient liquidity and the position remains open while losses grow, the maintenance margin ratio may rise above 200%, or worse, the collateral value could drop below zero.

👉 Discover how top-tier platforms handle extreme market risks with advanced risk engines.

At this point, Automatic Deleveraging (ADL) kicks in. Instead of relying on public market orders, the system identifies a counterparty from profitable opposing positions and executes a direct trade at the mark price. This ensures the liquidation completes successfully, minimizing the chance of auto-deleveraging loss (ADL loss) or insolvency for the exchange.

The primary goal? To prevent scenarios where the exchange itself must cover losses—especially during "black swan" events—thereby protecting overall platform solvency and user fund security.

How ADL Differs from Standard Liquidation

It’s important to clarify two key points:

1. ADL is not a separate event—it’s an extension of forced liquidation used only when traditional methods fail.
2. The account selected for ADL acts as the counterparty to the failing position, effectively stepping in to close it.

While this provides necessary liquidity, it also means that highly profitable, high-leverage traders may see their positions reduced—even if they're in good standing.

Who Gets Selected for ADL?

Selection isn't random. The system ranks eligible accounts using a metric called the Leverage Profitability Score (LPS). Accounts with higher scores are more likely to be chosen as counterparties.

Leverage Profitability Score Formula

Leverage Profitability Score = Account Maintenance Margin Rate × Position Profit Rate

Account Maintenance Margin Rate

• Isolated Margin Mode:
  (Total Maintenance Margin + Number of Long Options × Strike Price) / (Total Margin Balance + Number of Long Options × Strike Price)
• Portfolio Margin Mode:
  Total Maintenance Margin / Total Collateral Value (same as maintenance margin rate)

Position Profit Rate

• Long Position:
  MAX((Mark Price - Entry Price) / Entry Price × 100%, 0)
• Short Position:
  MAX((Entry Price - Mark Price) / Entry Price × 100%, 0)

Tie-Breaking Rules

If scores are equal, ranking proceeds by:

1. Larger position size → smaller
2. Higher position profit rate → lower
3. Higher account margin rate → lower

💡 Note: Isolated margin positions also participate in ADL ranking using their isolated margin metrics.

Real-World Example

Let’s say Amy holds a long position in BTCUSD perpetual contracts. Due to a sudden price drop, her maintenance margin ratio surpasses 200%, triggering ADL-based liquidation.

The system scans all short-position holders (her natural counterparties): Accounts A, B, C, and D. After calculating each one’s Leverage Profitability Score, Account A ranks highest and is selected to offset Amy’s position at the current mark price.

This direct execution closes Amy’s risky position instantly and credits Account A with a partial reduction in exposure—locking in profits and reducing leverage automatically.

👉 See how real-time risk engines prioritize counterparty matching during volatility spikes.

How to Monitor Your ADL Risk

On the holdings page, look for the indicator light next to your product. The more lights illuminated, the higher your position ranks in the ADL queue—and the greater your chance of being selected as a counterparty.

After an ADL event:

• You’ll receive an email or SMS notification detailing the executed trade.
• Full transaction records are available in your order history.
• You’re free to re-enter the market anytime after the event.

Can You Avoid Being Auto-Deleveraged?

While being selected for ADL isn’t inherently negative—it locks in gains and reduces risk—it does mean losing part of a winning position. So how can you reduce your chances?

Key Strategies:

• Lower your leverage: High leverage increases both profit potential and ADL exposure.
• Secure profits proactively: Don’t wait for the system to act. Use take-profit orders or manually close portions of winning trades.
• Monitor market conditions: During high volatility, even strong positions face elevated ADL risk.
• Diversify across products: Spread exposure across different instruments to reduce concentration risk.

Remember: Markets can reverse quickly. Today’s profitable long could become tomorrow’s liquidation candidate. ADL protects the ecosystem—but smart traders protect themselves first.

Why ADL Benefits All Users

Beyond just resolving failed liquidations, ADL plays a broader role:

• Prevents exchange insolvency by avoiding reliance on house funds.
• Ensures fair burden-sharing among profitable traders rather than letting extreme losses fall on the platform.
• Maintains market integrity during black swan events.

In essence, ADL turns systemic risk into a shared, controlled process—keeping the entire trading environment stable.

Frequently Asked Questions (FAQ)

Q: Does being selected for ADL mean I lost money?
A: No. ADL only affects profitable positions. You lock in gains and reduce leverage—it's like a forced profit-taking mechanism.

Q: Can I opt out of ADL entirely?
A: No. All leveraged traders participate in the ADL system as potential counterparties. However, lowering your leverage and profit rate reduces your ranking.

Q: Is ADL instant? How fast does it execute?
A: Yes. Once triggered, ADL executes immediately at the mark price to ensure rapid risk resolution.

Q: Does ADL apply to both futures and options?
A: Currently, ADL primarily applies to perpetual and futures contracts. Options positions may influence margin calculations but aren’t directly subject to ADL.

Q: Are isolated margin accounts included in ADL?
A: Yes. Isolated positions are evaluated separately using their own margin and profit metrics for ADL ranking.

Q: How often do ADL events happen?
A: Rarely—only during extreme volatility or flash crashes. Most traders may never experience one unless holding large, highly leveraged positions.

Automatic Deleveraging is more than just a safety net—it's a sophisticated tool that maintains balance in high-stakes trading environments. By understanding how ADL, margin rates, and profitability scoring interact, traders gain better control over their risk profiles.

👉 Stay ahead with intelligent risk management tools designed for volatile markets.

Whether you're managing a small portfolio or running large derivatives positions, awareness of these mechanisms empowers smarter decisions—before the market decides for you.