Does ADL Affect a Trader’s Margin Balance or Just Their Position Size?
ADL primarily affects the trader's position size by forcibly reducing it. The margin that was backing the reduced portion of the position is then released back to the trader's available margin balance.
However, the trader's overall realized profit is used to cover the deficit, which effectively reduces the final value of their account, thus impacting the margin balance indirectly.
Glossar
Margin Balance
Balance ⎊ The margin balance represents the net value of a trading account, reflecting the difference between the total collateral posted and the current realized and unrealized profit or loss on open positions.
Position Size
Allocation ⎊ Position size, within cryptocurrency and derivatives markets, represents the proportional capital commitment to a specific trade or investment relative to total available trading capital; it’s a fundamental risk management parameter directly influencing portfolio volatility and potential drawdown.
Available Margin
Capacity ⎊ Available Margin, within cryptocurrency derivatives, represents the portion of an account’s equity not currently utilized for open positions or required for maintaining those positions; it’s a critical determinant of potential trading activity.