What Is “Auto-Deleveraging” (ADL) and When Is It Used?
Auto-Deleveraging (ADL) is a risk management protocol used by some crypto futures exchanges to cover losses from liquidated positions that the insurance fund cannot absorb. When the insurance fund is insufficient, ADL automatically reduces the leverage of profitable traders who hold opposing positions.
This ensures that the system remains solvent and prevents socialized losses across all traders.
Glossar
Systematic Deleveraging
Mechanism ⎊ Systematic deleveraging is a risk management protocol used by derivatives exchanges to automatically reduce the leverage of profitable traders to cover losses from liquidated positions.
Automated Deleveraging Action
Action ⎊ Automated deleveraging action refers to the forced reduction of a profitable trader's position to cover the losses of an insolvent counterparty on a derivatives exchange.
Liquidation Event
Event ⎊ A liquidation event, within cryptocurrency derivatives and options trading, represents the involuntary closure of a position due to margin requirements falling below a predetermined threshold.
Financial Instrument Deleveraging
Liquidation ⎊ This is the forced closing of an open position when the margin level falls below the maintenance requirement, a necessary but disruptive event in leveraged trading.
Rapid Deleveraging
Mechanism ⎊ Rapid deleveraging is a market phenomenon where a significant number of leveraged positions are simultaneously closed, often through automated liquidations.
Encouraging Deleveraging
Deleveraging ⎊ Encouraging deleveraging refers to the strategic actions taken by exchanges and protocols to reduce the total amount of outstanding leverage in the market.
Exchange Deleveraging Mechanism
Mechanism ⎊ An exchange deleveraging mechanism is a risk management tool used by derivatives exchanges to reduce or close out leveraged positions when a trader's margin falls below maintenance levels.
Market Deleveraging
Process ⎊ Market deleveraging is the rapid, forced reduction of outstanding leveraged positions across cryptocurrency derivative platforms, typically triggered by a sharp price decline that pushes margin accounts below maintenance levels.
Deleveraging Strategies Crypto
Motive ⎊ Deleveraging Strategies Crypto are executed by market participants seeking to reduce their overall financial leverage, often in response to heightened market volatility, adverse price movements, or anticipated regulatory changes.
Auto Settlement Definition
Definition ⎊ This term specifies the protocol by which the final value of a derivative contract, particularly options, is determined and reconciled without manual intervention at expiration.