Technical Definition
Auto-Deleveraging (ADL)
A risk-control mechanism on futures exchanges where highly profitable leveraged positions are forcibly reduced/closed to cover losses of bankrupt positions.
By Crypto University Editorial
Liquidation
✦ Key Insight
Why It Matters: Prevents exchange insolvency in extreme volatility; affects high-leverage traders in crowded trades. How It Works: Ranked by leverage/profit; in liquidation cascade, ADL closes opposing profitable positions to fund bankrupt ones. Common Mistakes: Ignoring ADL queue (visible on p
✕ Common Misconceptions
It is often mistaken for similar sounding terms, but the technical implementation is distinct.
Detailed Explanation
Why It Matters:
Prevents exchange insolvency in extreme volatility; affects high-leverage traders in crowded trades.
How It Works:
Ranked by leverage/profit; in liquidation cascade, ADL closes opposing profitable positions to fund bankrupt ones.
Common Mistakes:
Ignoring ADL queue (visible on platforms); over-leveraging in volatile assets.
FAQs
How to avoid?
Lower leverage, watch queue indicator.
Only futures?
Yes, primarily perps/futures.
In Practice
“In a flash crash, if shorts bankrupt, long positions with high leverage/profit get partially closed via ADL.”
Ad
Get a $100K funded account
See current qualification terms and payout conditions.
Sponsored