Introduction to Auto-Deleveraging (ADL)
Auto-deleveraging (ADL) is a critical risk management mechanism utilized on Bitget’s futures trading platform. In volatile market conditions or during extreme events, the platform’s Insurance Fund may become exhausted. ADL plays an essential role in mitigating risk, safeguarding both user and platform funds.
When is ADL Triggered?
- Triggered Condition: ADL is activated when the corresponding coin’s Insurance Fund is completely utilized.
When is ADL Terminated?
- Termination Condition: ADL is concluded when the Insurance Fund recovers to a positive value.
How ADL Works
Upon activation of ADL, the platform halts open market orders for liquidation. Instead, it matches users’ liquidated positions with counterparties listed in the ADL ranking.
Execution Process
- Bankruptcy Price: Liquidated positions are executed at their bankruptcy price, exempt from transaction fees.
- Position Transfer: The platform takes over the futures position, crediting profits to the user’s account balance.
- Clawback Suspension: The clawback process is paused to stabilize the market post-ADL activation.
Counterparty Ranking Rules
Counterparty selection for ADL is based on risk-adjusted Return on Investment (ROI), favoring profitable positions. Here are the ranking criteria derived from ADL scores:
Cross Margin Calculation
- Profitable Position: ADL Score = Position ROI × Maintenance Margin Rate
- Loss-Making Position: ADL Score = Position ROI ÷ Maintenance Margin Rate
Calculation for Multi-Asset Margin
The equations are analogous to cross-margin; both profitable and loss-making positions follow the same formula.
Isolated Margin Specifics
For isolated margins, the ADL score differs based on the position maintenance margin rate:
- Profitable: ADL Score = Position ROI × Position Maintenance Margin Rate
- Loss-Making: ADL Score = Position ROI ÷ Position Maintenance Margin Rate
Adjustments to Counterparty Execution Price
To protect user interests, Bitget has made adjustments regarding ADL execution prices based on market conditions:
- Non-Extreme Market Conditions: When minor price fluctuations are observed, the ADL counterparty execution price matches the mark price.
- Extreme Market Conditions: In times of high volatility, the price shifts to the position price of the insurance fund to ensure platform stability.
Fluctuation Criteria
Depending on leverage levels:
- up to 15x: Trigger price fluctuation under 30% in 5 minutes, or under 70% in 1 hour.
- up to 50x: Trigger price fluctuation under 20% in 5 minutes, or under 60% in 1 hour.
- up to 125x: Trigger price fluctuation under 10% in 5 minutes, or under 50% in 1 hour.
Case Study: Adl Implemented
Consider hypothetical conditions where Bitget’s Insurance Fund dips due to extreme market activity:
- Counterparty Ranking: Users are ranked by ADL scores, prioritizing those profitable.
| User | Position Direction | Unrealized PnL (USDT) | Position Value (USDT) | Maintenance Margin Rate | Position ROI | ADL Score | Ranking |
|——|——————-|———————–|———————-|————————-|————-|———–|———|
| A | Long | 500 | 10,000 | 10% | 5% | 0.005 | 1st |
| B | Long | 300 | 8,000 | 8% | 3.75% | 0.003 | 2nd |
| C | Long | −100 | 6,000 | 6% | −1.67% | −0.27 | 3rd |
| D | Long | −200 | 5,000 | 5% | −4% | −0.8 | 4th | - ADL Execution: Choosing User A for liquidation; a 5000 USDT position fills at bankruptcy price without slippage.
- Position Management: User A’s position is credited, while their unrealized PnL is settled.
- Termination of ADL: ADL ceases if the Insurance Fund stabilizes; otherwise, the next user is prioritized.
Strategies to Reduce ADL Ranking
Investors seeking to minimize auto-deleveraging risks should consider:
- Reduce Leverage: Lowering leverage ratios decreases the likelihood of ADL randomization.
- Hedging: Employing strategic hedging can mitigate large profits, moving a position to a more favorable ADL score.
- Position Diversification: Spreading out investments across various trades reduces risk concentration.
- Market Monitoring: Keeping an eye on Bitget’s Insurance Fund trends aids in proactive adjustment.
Conclusion
Bitget’s auto-deleveraging (ADL) is pivotal for managing risk in futures trading, ensuring a robust and secure trading environment for users. Understanding how ADL operates can enhance traders’ approaches, optimizing their strategies effectively.