How ADL Works
1. A trader's position is liquidated 2. The liquidation engine cannot close the position at a favorable price (market is moving too fast) 3. The insurance fund covers the shortfall 4. If the insurance fund is depleted, ADL activates 5. Profitable traders on the opposite side are forcefully closed at the bankruptcy price 6. Priority: Most profitable + highest leverage traders are de-leveraged first
ADL Priority Ranking
Exchanges rank traders for ADL based on:- Profit percentage: More profitable = higher priority
- Effective leverage: Higher leverage = higher priority
- Both factors combined determine who gets de-leveraged first
Why ADL Exists
Without ADL, exchanges could become insolvent during extreme market events. ADL distributes the risk of socialized losses across the most profitable participants rather than letting the exchange go bankrupt.How to Reduce ADL Risk
- Use lower leverage
- Take profits regularly (reduce your profit ranking)
- Diversify across exchanges
- Monitor the ADL indicator on your exchange