What Is Auto-Deleveraging?
Auto-deleveraging (ADL) is a last-resort risk management mechanism used by derivatives exchanges when a bankrupt position cannot be liquidated at the bankruptcy price and the insurance fund is insufficient to cover the loss. In ADL, the exchange forcibly closes profitable positions on the opposite side to cover the deficit.
How Auto-Deleveraging Works
ADL priority is determined by a ranking system: traders with both the highest profit and the highest leverage are deleveraged first. Most exchanges display an ADL indicator that shows your position in the queue. During extreme volatility events (flash crashes, cascading liquidations), ADL can trigger for many traders simultaneously.
Why It Matters for Traders
ADL is one of the most frustrating events in crypto trading — your profitable, correctly-positioned trade gets forcibly closed because another trader's loss exceeded the exchange's capacity. To minimize ADL risk: trade on exchanges with large insurance funds, avoid using maximum leverage even when profitable, and reduce position sizes during periods of extreme market stress.