Does ADL Affect Perpetual Futures Contracts Only?
Auto-deleveraging (ADL) is most commonly associated with and primarily affects perpetual futures contracts. Perpetual futures, unlike traditional futures, have no expiry date, making the risk management mechanisms like ADL crucial for continuous operation.
While less common, the underlying principles of ADL could theoretically be applied to other leveraged derivatives, but the standard practice is to reserve it for perpetual swaps due to their inherent structural risk.
Glossar
Perpetual Futures Contracts
Structure ⎊ Perpetual futures contracts are a unique type of derivative in the cryptocurrency market that mirrors a traditional futures contract but lacks a fixed expiration date.
Standard Practice
Calibration ⎊ Standard practice within cryptocurrency derivatives necessitates rigorous calibration of pricing models to reflect the unique characteristics of these nascent markets, differing substantially from traditional financial instruments.
Perpetual Futures
Structure ⎊ Perpetual Futures are a type of derivative contract, native to the cryptocurrency market, that allows traders to speculate on the future price of an underlying asset without a fixed expiration date.
Underlying Principles
Foundation ⎊ Underlying principles represent the fundamental concepts and core tenets that govern the operation and valuation of financial instruments and markets.
Perpetual Swaps
Derivatives ⎊ Perpetual swaps represent a class of financial derivatives, specifically within the cryptocurrency ecosystem, that replicate the payoff of a futures contract without a fixed expiration date.