What is the Auto-Deleveraging Mechanism in Futures Trading?
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1. Definition
Auto-deleveraging (ADL) refers to a forced liquidation mechanism applied to counterparties when extreme market conditions or force majeure lead to insufficient risk reserves or a rapid decrease in them. It is implemented to control overall platform risk. The priority ranking for auto-deleveraging is determined based on traders' leverage and yield.
2. The Deleveraging Process
The system calculates the PNL (Profit and Loss) rankings based on yield and effective leverage. Traders with aggressive strategies and the highest profitability are prioritized for ADL. After triggering ADL, the system identifies the counterparty account with a high PNL ranking and directly conducts a trade with it at the bankruptcy price, thereby achieving the goal of auto-deleveraging.
3. Calculation Formulas for Auto-Deleveraging Priority Ranking
The priority ranking for auto-deleveraging is determined based on the following formulas:
Priority Ranking = Profit Percentage * Effective Leverage (if profitable) = Profit Percentage / Effective Leverage (if in loss)
Wherein:
Effective Leverage = (Mark Value) / (Mark Value - Bankruptcy Value)
Profit Percentage = (Mark Value - Average Entry Value) / (Average Entry Value)
Mark Value = Position value when at the mark price
Bankruptcy Value = Position value when at the bankruptcy price
Average Entry Value = Position value when at the average entry price
Note: The system ranks both sides separately from high to low.
4. Summary
The ADL mechanism provides an effective risk management tool for cryptocurrency futures trading, helping traders better navigate risks in extreme market conditions and reduce potential adverse impacts. When participating in futures trading digital currencies, traders should understand and adhere to relevant trading rules to better utilize the ADL mechanism to safeguard their investments.
Disclaimer: This information does not provide advice on investment, taxation, legal, financial, accounting, or any other related services, nor does it constitute advice to purchase, sell, or hold any assets. MEXC Learn provides information for reference purposes only and does not constitute investment advice. Please ensure you fully understand the risks involved and exercise caution when investing. The platform is not responsible for users' investment decisions.