Auto-Deleveraging

Auto-Deleveraging (ADL) is a critical risk management strategy used by Defx. This mechanism activates particularly under conditions of market volatility and high leverage, which can strain the insurance fund designed to cover losses for liquidated traders. When triggered, ADL liquidates the trader's margin position, and the trader is immediately notified.

ADL applies selectively to a ranked list of users, the ranking of which is determined based on their unrealized profit and leverage levels. In other words, larger the unrealized profit and higher the leverage, higher is the trader’s risk for ADL.

ADL operates by automatically deleveraging positions of those traders who exhibit the highest risk. An ADL indicator on the trading platform informs traders of their current risk level; a fully illuminated indicator warns of imminent deleveraging. Traders should monitor their ADL status regularly, especially during volatile market conditions, to anticipate and react to potential ADL actions.