How Does the “Auto-Deleveraging” (ADL) System Work in a Derivatives Exchange?
The ADL system is the final step in the liquidation process. If the insurance fund cannot cover a liquidated position's deficit, the ADL system automatically deleverages the highest-ranked profitable traders on the opposite side of the trade.
This means their position is forcibly closed at the liquidation price, reducing their profit but ensuring the market remains solvent.