# What Is "Deleveraging" and How Is It Managed by Exchanges? ⎊ Path

**Published:** 2025-12-05
**Author:** Greeks.live
**Categories:** Path

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## 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.

- [Explain the Concept of “Auto-Deleveraging” (ADL) in Futures Markets](https://learn.greeks.live/path/explain-the-concept-of-auto-deleveraging-adl-in-futures-markets/)

- [What Is the Goal of a “Deleveraging” Mechanism on Some Futures Exchanges?](https://learn.greeks.live/path/what-is-the-goal-of-a-deleveraging-mechanism-on-some-futures-exchanges/)

- [How Does an Auto-Deleveraging (ADL) System Function in a Futures Exchange?](https://learn.greeks.live/path/how-does-an-auto-deleveraging-adl-system-function-in-a-futures-exchange/)

- [What Is ‘Auto-Deleveraging’ (ADL) and How Is It Used by Crypto Exchanges?](https://learn.greeks.live/path/what-is-auto-deleveraging-adl-and-how-is-it-used-by-crypto-exchanges/)

- [What Is the Role of an Auto-Deleveraging (ADL) System?](https://learn.greeks.live/path/what-is-the-role-of-an-auto-deleveraging-adl-system/)

- [How Do Exchanges Use ‘Auto-Deleveraging’ (ADL) in Extremely Volatile Markets?](https://learn.greeks.live/path/how-do-exchanges-use-auto-deleveraging-adl-in-extremely-volatile-markets/)

- [What Is the Purpose of an Automatic Deleveraging (ADL) System in Futures Trading?](https://learn.greeks.live/path/what-is-the-purpose-of-an-automatic-deleveraging-adl-system-in-futures-trading/)

- [Explain the Concept of Auto-Deleveraging (ADL) in High-Leverage Crypto Futures](https://learn.greeks.live/path/explain-the-concept-of-auto-deleveraging-adl-in-high-leverage-crypto-futures/)

## Discover More

### [How Is Collateral (Margin) Managed and Liquidated in a Decentralized Derivatives Smart Contract?](https://learn.greeks.live/path/how-is-collateral-margin-managed-and-liquidated-in-a-decentralized-derivatives-smart-contract/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Is Collateral (Margin) Managed and Liquidated in a Decentralized Derivatives Smart Contract?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Exchange-Structure-Visualizing-Collateralized-Non-Deliverable-Forward-Contract-Mechanics.webp)

Collateral is locked in a smart contract, which uses oracles to trigger automated liquidations if the value drops too low.

### [What Role Do Oracles Play in Executing Financial Derivatives Managed by Smart Contracts?](https://learn.greeks.live/path/what-role-do-oracles-play-in-executing-financial-derivatives-managed-by-smart-contracts/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Role Do Oracles Play in Executing Financial Derivatives Managed by Smart Contracts?](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-View-of-Digital-Asset-Custody-Mechanism-Coupling-with-Off-Exchange-Tokenized-Security-Settlement.webp)

Oracles feed real-world data to smart contracts to trigger the execution of financial derivatives.

### [How Do Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) Differ in Managing Margin Shortfalls?](https://learn.greeks.live/path/how-do-centralized-exchanges-cex-and-decentralized-exchanges-dex-differ-in-managing-margin-shortfalls/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) Differ in Managing Margin Shortfalls?](https://learn.greeks.live/wp-content/uploads/2025/10/Xray-Visualization-of-Bifurcated-Digital-Asset-Settlement-Mechanisms-Leveraging-NonFungible-Token-Call-Options.webp)

CEXs use a centralized fund and fast off-chain engines, while DEXs use smart contracts and pooled liquidity with higher on-chain costs.

### [Can a Stop-Loss Order Prevent an 'Auto-Deleveraging' Event on a Futures Exchange?](https://learn.greeks.live/path/can-a-stop-loss-order-prevent-an-auto-deleveraging-event-on-a-futures-exchange/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Can a Stop-Loss Order Prevent an 'Auto-Deleveraging' Event on a Futures Exchange?](https://learn.greeks.live/wp-content/uploads/2025/10/Microscopic-Analysis-of-Cryptographic-Key-Extraction-Through-Differential-Exchange-Mechanism.webp)

Yes, by ensuring a timely exit, a stop-loss reduces the chance of the trader's position being selected for ADL by the exchange.

### [What Is "Auto-Deleveraging" (ADL) and How Does It Function in High-Leverage Crypto Exchanges?](https://learn.greeks.live/path/what-is-auto-deleveraging-adl-and-how-does-it-function-in-high-leverage-crypto-exchanges/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is "Auto-Deleveraging" (ADL) and How Does It Function in High-Leverage Crypto Exchanges?](https://learn.greeks.live/wp-content/uploads/2025/10/Symmetric-Quadrant-Liquidity-Pools-Visualizing-Decoupled-Exchange-Settlement-Mechanisms.webp)

ADL automatically reduces the leverage of profitable opposing traders to cover losses when the insurance fund is insufficient, maintaining exchange solvency.

### [How Do Exchanges Manage "Auto-Deleveraging" (ADL) during Extreme Volatility?](https://learn.greeks.live/path/how-do-exchanges-manage-auto-deleveraging-adl-during-extreme-volatility/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Exchanges Manage "Auto-Deleveraging" (ADL) during Extreme Volatility?](https://learn.greeks.live/wp-content/uploads/2025/10/Microcosmic-Examination-of-Automated-Market-Maker-Mechanism-Parameters-in-Decentralized-Finance-Oracles.webp)

As a last resort when the insurance fund fails, the system forcibly closes profitable, low-leverage positions to cover losses from bankrupt positions.

### [How Are the Private Keys for the Threshold Signature Distributed and Managed?](https://learn.greeks.live/path/how-are-the-private-keys-for-the-threshold-signature-distributed-and-managed/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Are the Private Keys for the Threshold Signature Distributed and Managed?](https://learn.greeks.live/wp-content/uploads/2025/10/Microscopic-Examination-of-Electromechanical-Actuator-Assembly-Interface-for-Decentralized-Finance-Protocol-Mechanics.webp)

Single Key x→Split N Shares x→T Combine (Decentralized Key Management)

### [Why Is a Stablecoin Pair (E.g. USDC/DAI) Typically Managed with a Very Narrow Range?](https://learn.greeks.live/path/why-is-a-stablecoin-pair-e-g-usdc-dai-typically-managed-with-a-very-narrow-range/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Why Is a Stablecoin Pair (E.g. USDC/DAI) Typically Managed with a Very Narrow Range?](https://learn.greeks.live/wp-content/uploads/2025/10/Analyzing-Synthetic-Saturnian-Ring-Structures-Modeling-Decentralized-Autonomous-Organization-Governance-Protocols.webp)

Low volatility and minimal IL risk allow LPs to use very narrow ranges to maximize capital efficiency and fee earnings near the 1:1 parity.

### [How Do Centralized Exchanges (CEXs) and DEXs Differ in Their Insurance Mechanisms?](https://learn.greeks.live/path/how-do-centralized-exchanges-cexs-and-dexs-differ-in-their-insurance-mechanisms/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Centralized Exchanges (CEXs) and DEXs Differ in Their Insurance Mechanisms?](https://learn.greeks.live/wp-content/uploads/2025/10/Futuristic-Decentralized-Finance-Protocol-Interface-Implementing-Quantum-Resistant-Encryption-Key-Injection-Mechanism.webp)

CEXs use a centralized fund; DEXs use decentralized, community-governed vaults or staking pools for insurance.

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