How Does the Implementation of ADL Differ from a Clawback Mechanism?
Auto-Deleveraging (ADL) is a forward-looking, automated mechanism that immediately closes a portion of a profitable trader's open position to cover a deficit. A clawback mechanism, conversely, is a retrospective action where an exchange attempts to recover funds already realized by profitable traders, often after a large market event has already occurred and a deficit remains.
ADL affects open trades; clawback affects settled profits.
Glossar
Clawback Mechanism
Recapture ⎊ A contractual provision allowing the CCP or designated resolution authority to reclaim funds or assets distributed during the initial phases of a default management process if the final realized loss proves to be lower than initially estimated.
Clawback
Mechanism ⎊ A clawback mechanism in cryptocurrency derivatives markets represents a risk management protocol designed to cover losses incurred by a defaulting trader when the exchange's insurance fund is depleted.