Skip to main content

Does High Trading Volume Counteract Volatility’s Effect on ADL Risk?

High trading volume can counteract volatility's effect on ADL risk by providing greater liquidity. Higher liquidity means the liquidation engine is more likely to find a counterparty to close the liquidated position quickly and at a better price, thus minimizing slippage and the resulting deficit that would draw from the insurance fund or trigger ADL.

What Is the Role of a Centralized Exchange’s Matching Engine in Minimizing Large Order Slippage?
Does a Fully Collateralized Futures Market Eliminate the Risk of Socialized Loss?
Why Is ADL Generally Preferred over Socialized Loss by Major Exchanges?
Does a Very Large Liquidity Pool (High K) Experience Less Price Impact from Trades?