What Is the Goal of a “Deleveraging” Mechanism on Some Futures Exchanges?
The goal of an auto-deleveraging (ADL) mechanism is to manage the residual losses of a liquidated position that could not be covered by the exchange's insurance fund. Instead of socializing the loss across all profitable traders, ADL automatically reduces the leverage of highly profitable, opposite-side traders to cover the deficit, ensuring market stability and preventing the insurance fund from being depleted.
