What Is “Deleveraging” and How Is It Managed by Exchanges?

Deleveraging is the process of reducing an investor's exposure, often forced. Exchanges manage this through Auto-Deleveraging (ADL).

If a liquidated account cannot be covered by the insurance fund, the ADL system automatically reduces the leverage of profitable traders on the opposite side of the trade to cover the loss, effectively reducing market risk by decreasing overall open interest.