FAQ on Auto-Deleveraging (ADL)
1. What Is Auto-Deleveraging (ADL)?
Auto-Deleveraging (ADL) is an important risk control mechanism in cryptocurrency Futures trading. When the market experiences extreme volatility, or when force majeure events cause the platform's risk reserve to become insufficient or decline rapidly, the system will trigger the ADL mechanism to control overall risk.
At its core, ADL is a counterparty position reduction mechanism. Based on traders' leverage levels and profit performance, the system ranks positions according to predefined rules and prioritizes accounts with higher leverage and higher profits for automatic position reduction. This helps ensure overall fund security and market stability on the platform.
2. How ADL Is Executed
Understanding how ADL works can help traders better manage potential risks. The system first calculates a PNL ranking based on profit performance and effective leverage (PNL refers to profit and loss). Traders with more aggressive strategies and higher profits are ranked higher and are more likely to be selected by the ADL mechanism.
Once ADL is triggered, the system automatically identifies counterparty accounts with higher PNL rankings and executes direct trades with them at the bankruptcy price, thereby completing the automatic deleveraging process. This process is fully automated and does not require any manual intervention.
3. Detailed Explanation of the ADL Ranking Formula
ADL ranking is strictly calculated using the following formula:
Ranking = Profit percentage × Effective leverage (if profitable)
Ranking = Loss percentage / Effective leverage (if at a loss)
Where:
- Effective Leverage = Fair Value / (Fair Value − Bankruptcy Value)
- Profit Percentage = (Fair Value − Average Entry Value) / Average Entry Value
- Fair Value = Position value at the fair price
- Bankruptcy Value = Position value at the bankruptcy price
- Average Entry Value = Position value at the average entry price
Note: Long and short positions are ranked separately from highest to lowest.
4. ADL Indicator Levels
MEXC provides an ADL indicator to help users visually understand where their positions rank in the auto-deleveraging queue. The ADL indicator has 5 levels, corresponding to 0 to 4 illuminated bars.
Ranking is based on profit per position for a single Futures trading pair, with long and short positions ranked separately.
Profit Ranking Range | ADL Level | Indicator Bars |
Top 25% | Level 4 | 4 bars lit |
25%–50% | Level 3 | 3 bars lit |
50%–75% | Level 2 | 2 bars lit |
75%–100% | Level 1 | 1 bar lit |
Loss-making positions | Level 0 | No bars lit |
The more bars illuminated, the higher the position ranks in the ADL queue. If all bars are lit, it means that the position will be prioritized for reduction if an ADL event occurs. Traders are advised to closely monitor the ADL indicator and adjust their positions accordingly.
5. How to Reduce the Risk of Being Auto-Deleveraged
To minimize the risk of being affected by ADL, traders are advised to take the following measures:
1) Control leverage: Choose an appropriate leverage level and avoid excessive leverage that may increase your ADL ranking.
2) Take profits in batches: Lock in profits gradually to reduce concentrated unrealized gains and lower the likelihood of being prioritized by the system.
3) Set take-profit and stop-loss (TP/SL) orders: Use reasonable TP and SL levels to avoid automatic position reduction during extreme market conditions.
4) Monitor the ADL indicator: Regularly check your ADL level and consider proactively adjusting positions when multiple bars are lit.