> For the complete documentation index, see [llms.txt](https://docs.bbx.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.bbx.com/business/on-chain-perpetual-trading/auto-deleveraging-adl.md).

# 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.