What Is ‘Auto-Deleveraging’ (ADL) and How Does the Insurance Fund Mitigate It?
Auto-Deleveraging (ADL) is a mechanism of last resort, activated when the insurance fund is depleted and cannot cover a bankrupt account's deficit. ADL forces profitable traders on the opposite side of the trade to automatically have their positions reduced (deleveraged).
The insurance fund's primary role is to absorb deficits, thereby preventing the need to use ADL, which is disruptive to profitable traders and market sentiment. A healthy fund minimizes ADL occurrences.
