Overview of Auto-Deleveraging
In the event of liquidation, when the position cannot be liquidated at a price that is better than the bankruptcy price and there is an insufficient insurance fund to cover the contract loss, ONUS Pro’s ADL system will automatically deleverage an opposing position from a trader that is selected.
Keynotes for ADL process
- Traders with the highest ranking in the system are prioritized and selected to deleverage.
- The auto deleveraging ranking is derived in order of highest profit and effective leverage use.
- The opposing order of selected trader will be deleveraged at the bankruptcy price of the liquidated order.
- Maker fee will be charged to the positions of selected traders and Taker fee will be charged to the liquidated orders.
- Traders are free to re-enter the market.
ADL Priority Deleveraging Ranking
Priority Ranking Calculation
Deleveraging priority is calculated by profit and leverage. More profitable and higher leveraged traders are deleveraged first.
Example
A trader opened 0.6315 BTC for Long position at 7,890.08 USD on 50x leverage, and the liquidation price is 7,773.50 USD.
First, let’s calculate the Bankruptcy Price.
Applying the formula for Long position:
Bankruptcy Price for Long (Buy) = [Entry Price * (Leverage -1)] / Leverage
= (7890.08 * 49) / 50 ≈ 7732.278
Assuming that the system is unable to liquidate this position at a price better than 7732.278 (Bankruptcy Price) and that there is an insufficient balance in the Insurance Fund to cover the contract loss, ADL will take over the process.
With the assumption that there are 6 short positions on the exchange, the trader with the highest ranking in the system is prioritized and selected to deleverage first. The auto deleveraging ranking is derived in order of highest profit and effective leverage use. The opposing order of selected trader will be deleveraged at the bankruptcy price of the liquidated order.
|
Traders with existing short positions |
The quantity of selling contracts |
Ranking |
Percentile |
|
Trader A |
0.697 |
6 |
20% |
|
Trader B |
0.3168 |
5 |
40% |
|
Trader C |
0.2534 |
4 |
60% |
|
Trader D |
0.38 |
3 |
60% |
|
Trader E |
0.2534 |
2 |
80% |
|
Trader F |
0.6315 |
1 |
100% |
Looking at the table, we can see that trader A has the highest ADL ranking. Trader A will be selected to fill all the 0.6315 contracts at 7,735.50 USD (Bankruptcy Price), and the remaining 0.0655 contracts will stay open, and he will be auto-deleveraged as he will then use the same margin while holding less Contract Value. After this, the ADL ranking of trader A may not be at the top anymore.
In another scenario, if there were 1 BTC to be deleveraged, then trader A and B will all be selected.
Maker fee will be charged to the positions of selected traders and Taker fee will be charged to the liquidated orders.
Note
- Under isolated margin, the individual position has the risk of being ADL
- Under cross margin, fully hedged positions will not be chosen for ADL. When the positions are not fully hedged, only the excess contracts that are not fully hedged may be subjected to ADL, and the positions that are hedged will not be affected.
How to manage my ADL ranking?
- ADL is a contract loss mechanism that will only be activated when there are insufficient funds inside the insurance fund to fully cover the contract losses of a liquidated position. This also means that as long as the insurance fund is substantial, the chances of ADL occurring will also be minimized. Therefore, always check the balance in the Insurance Fund before and during position opening to minimize the risk of ADL mechanism.
- Traders can manage the exposure to ADL by lowering your leverage or do a partial closing of your profiting position.
- Lowering the leverage will lower the ADL ranking in real-time.
- Doing a partial closing of a profiting position does not lower the ADL ranking but reduces the number of contracts that are exposed to ADL risk.
- If partial closing does not address your concerns, please consider doing a full closure of your existing position.