Auto-Deleveraging (ADL)

Auto-Deleveraging (ADL) is a last-resort risk management mechanism that activates only when liquidation losses cannot be fully absorbed by the trader's margin and the insurance fund.

ADL Trigger Conditions

ADL is triggered when:

• The actual liquidation fill price is worse than the bankruptcy price, AND

• The insurance fund's rate of depletion exceeds a predefined safety threshold.

ADL is not part of normal trading operations and only occurs under extreme market conditions.

How ADL Works

When ADL is activated:

• The positions of the counterparties to the liquidated position are forcibly reduced.

• Reduction starts with traders ranked highest in ADL priority.

• Positions may be partially or fully reduced.

Affected traders may immediately re-enter the market after an ADL event.

ADL Priority Ranking

ADL does not affect all traders equally. Positions are ranked based on profitability and leverage ratio.

ADL Ranking Logic:

• Profitable Positions: ADL Rank = Profit Percentage × Effective Leverage

• Loss-Making Positions: ADL Rank = Profit Percentage ÷ Effective Leverage

Variable Definitions:

• Effective Leverage = |Mark Value ÷ (Mark Value − Bankruptcy Value)|

• Profit Percentage = (Mark Value − Average Entry Value) ÷ |Average Entry Value|

• Mark Value = Position value calculated at the mark price

• Bankruptcy Value = Position value calculated at the bankruptcy price

• Average Entry Value = Position value calculated at the average entry price

ADL Risk Indicator

The BBX trading interface displays an ADL risk indicator for each position:

• The indicator reflects the trader's relative ADL ranking.

• Rankings are displayed in 20% increments.

• More lit segments indicate higher ADL risk.

• Positions with most or all segments lit carry a higher probability of being reduced in an ADL event.

Reducing ADL Risk

Traders can reduce their ADL risk exposure by:

• Using lower leverage.

• Taking profits regularly.

• Maintaining sufficient margin.

• Continuously monitoring margin ratio and liquidation price.

ADL vs. Forced Liquidation

Forced liquidation applies to loss-making positions that can no longer meet maintenance margin requirements. ADL applies only to profitable, high-leverage positions, and activates only after all other risk buffers have been exhausted. Both mechanisms work together to maintain the overall stability of the system.