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What Is the Practical Impact of ADL on Market Liquidity?

Generally negative; it can cause a sudden decrease in open interest and may erode trader confidence, reducing activity.
Greeks.Live23.11.25

What Is the Practical Impact of ADL on Market Liquidity?

The practical impact of Auto-Deleveraging (ADL) on market liquidity is generally negative. When ADL occurs, it forcibly reduces positions, which can lead to a sudden decrease in open interest.

While the primary purpose is to cover a deficit, the forced closure of profitable trades can cause market participants to lose confidence, potentially leading to a temporary reduction in trading activity and liquidity as traders become more cautious about holding large, leveraged positions.

What Is the Concept of ‘Open Interest’ and How Does It Indicate Potential Options Liquidity?
What Is the Relationship between Open Interest and Bid-Offer Spread in Options?
How Does ADL Affect Market Liquidity during Extreme Events?
How Does the Concept of ‘Net Open Interest’ Relate to Liquidation Risk?

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