Auto-Deleveraging (ADL): Understanding Its Impact on Your Trading Positions

What Is Auto-Deleveraging (ADL)?

Auto-Deleveraging (ADL) is a risk management mechanism designed to protect trading platforms when extreme market volatility leads to liquidation losses. If OKX’s risk reserve (applicable to specific products) cannot fully absorb losses from liquidated positions, ADL is triggered to mitigate further depletion of the reserve.

Under ADL:

• Losing positions are matched against profitable or highly leveraged positions (called "deleveraged positions").
• Both positions are offset and closed, eliminating further risk to the platform’s reserve.
• Note: Profitable positions may be forcibly closed, limiting future profit potential.

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Why Is ADL Necessary?

ADL protects OKX’s risk reserve funds, which consist of digital assets held to cover:

• Trading and operational risks (e.g., order matching, margin trading).
• Losses from market volatility or malicious activity.

Key reasons for ADL:

1. Prevents systemic risk by socializing losses across profitable positions.
2. Preserves platform stability during extreme volatility.
3. Reduces dependency on manual interventions.

When Is ADL Triggered?

ADL activates as a last-resort mechanism under these conditions:

| Trigger Condition | Example Scenario |
|------------------|------------------|
| Risk reserve drops below the "volatility threshold" (8-hour average value minus 30% or $50K, whichever is higher). | Current reserve: $200K; 8-hour average: $400K → Threshold: $280K. If reserve falls below $280K, ADL starts. |
| Risk reserve is fully depleted. | Reserve hits $0. |
| Unmatched liquidation orders exceed OKX’s thresholds (futures/options only). | Market cannot absorb excess liquidations. |

What Happens During ADL?

1. Losing positions are matched against profitable/high-leverage positions without entering the order book.
2. Both positions are force-closed at market price.

3. Ranking system determines which positions are deleveraged:

   • Formula: (Position PnL ÷ Margin Rate) for isolated margin; (Account PnL ÷ Account Margin Rate) for cross-margin.
   • Higher-ranking positions face greater ADL risk.

⚠️ Warning: ADL may close profitable trades unexpectedly.

When Does ADL End?

ADL stops when:

1. Risk reserve rebounds above the volatility threshold + buffer (6% of 8-hour average or $10K).

   • Example: Reserve recovers to $320K (threshold: $280K + $24K buffer) → ADL stops.
2. Reserve exceeds $8K after full depletion.
3. Liquidation orders normalize (futures/options only).

FAQs

1. How can I predict ADL?

ADL is unpredictable but more likely during high volatility. Monitor OKX’s risk reserve dashboard for real-time updates.

2. Can I avoid ADL?

• Reduce leverage to lower ADL exposure.
• Use stop-loss orders to limit liquidation risks.

3. Are fees charged during ADL?

• No fees for deleveraged positions.
• Losing positions pay standard closing fees.

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Key Takeaways

1. ADL protects platforms and users from cascading liquidations.
2. High-leverage positions face greater ADL risk.
3. Monitor reserve levels and adjust strategies accordingly.

Disclaimer: Trading involves risks. OKX may update ADL policies without prior notice.