What Is Auto-Deleveraging (ADL) and When Is It Used?
Auto-Deleveraging (ADL) is a risk management protocol used by exchanges as a last resort when the insurance fund is insufficient to cover losses from a liquidated position. It forcibly deleverages opposing profitable traders, starting with the most profitable and highest-leveraged ones.
This action is taken to ensure the solvency of the exchange and to prevent the socialized loss of all traders.
Glossar
Deleveraging Process Details
Procedure ⎊ The precise procedure for Automated Deleveraging involves systematically closing out the largest, most under-collateralized positions first to restore margin health.
Deleveraging Risks
Contagion ⎊ Deleveraging risks refer to the systemic hazard where a sharp, rapid decline in asset prices forces leveraged traders to liquidate positions, creating a cascading effect that further depresses market value.
Auto Deleveraging Protocol
Protocol ⎊ The Auto Deleveraging Protocol is a risk management framework implemented by derivatives exchanges to manage insolvencies in highly leveraged markets.
Deleveraging Risk
Dynamic ⎊ Deleveraging risk describes the inherent market dynamic where a large number of leveraged positions are simultaneously forced to close, often due to a rapid adverse price movement.
Forced Deleveraging
Mechanism ⎊ Forced Deleveraging is a backstop risk management mechanism employed by certain centralized cryptocurrency derivatives exchanges, particularly those offering high leverage perpetual swaps.
Deleveraging Implementation
Implementation ⎊ The process of deleveraging, within cryptocurrency derivatives, options trading, and broader financial derivatives, signifies a strategic reduction of leverage employed by market participants.
Auto Deleveraging Thresholds
Action ⎊ : These critical levels represent the point at which a trading entity's margin coverage falls below a mandated safety factor.
Auto Deleveraging Concepts
Mechanism ⎊ Auto deleveraging represents a risk mitigation protocol integral to derivatives exchanges, particularly prevalent in perpetual swap markets, designed to counteract cascading liquidations during periods of heightened volatility.
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.
Forceful Deleveraging
Deleveraging ⎊ Forceful deleveraging is a specific risk mitigation protocol employed by some derivatives exchanges, particularly in cryptocurrency markets, to manage losses that exceed the capacity of the insurance fund.