ADL (Auto-Deleveraging) is a risk control mechanism used by crypto derivatives exchanges to protect the system during extreme market conditions. It occurs when the exchange is unable to liquidate losing positions fast enough to cover the profits of winning traders. When this happens, the exchange automatically reduces or closes positions of traders who are in profit, starting with those that have the highest leverage and unrealized gains. In simple terms, ADL means that even if your trade is correct, it can be forcefully closed by the exchange to prevent systemic imbalance.
To understand why ADL exists, it’s important to look at how perpetual futures work. In a highly leveraged market, losing positions are normally liquidated and their remaining margin is used to pay winning traders. However, during sharp and fast moves — especially in low-liquidity environments — liquidations may not happen at prices good enough to fully cover those profits. When the insurance fund of the exchange is not sufficient, ADL is triggered as a last-resort mechanism to keep the system solvent.
A practical example makes this clearer. Imagine you are long BTC with high leverage and the market moves strongly in your favor after a cascade of short liquidations. Your position is deep in profit. At the same time, many short positions are liquidated at worse prices than expected due to slippage. If the exchange cannot cover all profits using the margin from liquidated traders and its insurance fund, it may automatically close part or all of your winning position through ADL. You didn’t make a mistake, your analysis was correct — but your position is reduced anyway.
ADL does not affect all traders equally. It prioritizes positions based on a ranking system that usually considers leverage and profit. Traders with high leverage and high unrealized gains are the first candidates. This is why ADL risk increases significantly when using excessive leverage, especially during high volatility events such as major news releases, funding imbalances, or sudden liquidity gaps. Lower leverage and better position sizing reduce the probability of being affected, even if ADL is triggered on the exchange.
The key takeaway is that ADL is not a bug or manipulation; it is a structural risk of trading leveraged derivatives. It reminds traders that profit in futures is not only about being right on direction, but also about understanding exchange mechanics.
