When traders are subjected to forced liquidation, their remaining positions will be taken over by forced liquidation system.
If positions subject to forced liquidation fail to be closed out on the market and when marked price reaches bankruptcy price, ADL system will lighten up the positions of investors holding inverted positions.
- Firstly, traders’ positions will be liquidated forcibly according to bankruptcy price. If insurance fund is still insufficient, ADL strategy will be triggered.
- The system will rank the PnLs calculated by the counterparty through yield rate and effective leverage. Traders with the highest ranking (most profitable with aggressive trading strategy) will be marked by ADL order as a matter of priority.
- ADL ranking is determined by effective leverage and profit/loss ratio of positions, that is, traders that have more profits and use greater leverages will have higher rankings.
- The positions of the executed party of auto deleveraging (ADL) system and traders with top rankings in terms of effective leverage and profit/loss will be lightened up automatically as per bankruptcy price.
- Traders subjected to ADL will receive system notice (e-mail/SMS) and all activity orders will be cancelled, and traders can re-enter the market freely for trading.
The ADL indicator light in the center of handicap will give ADL warning to your positions according to the order of all positions (the highest) that you hold in the contract.
Every light represents 20% priority order. When all lights turn on, your positions may be reduced once forced liquidation occurs.
How to reduce ADL risk
The ranking of ADL order is determined based on the profitability and leverage of your positions, so you can:
- Reduce ADL ranking risk by adding margin (adding available balance of all positions);
- Re-open or close positions to reduce your ranking;
ADL ranking will be reduced immediately after the leverage used for positions is lowered.
Calculation of ADL Order
Calculation of profit/loss:
Order = profit percentage * effective leverage (in case of profit)
= Profit percentage / effective leverage (in case of loss)
Effective leverage = abs (marked value) / (marked value - bankruptcy value)
Profit percentage = (marked value - average position-opening value) / abs (average position-opening value)
Marked value = position value at marked price
Bankruptcy value = position value at bankruptcy price
Average position-opening value = position value at average position-opening price
*abs stands for absolute value and it refers to real number without considering its positive and negative value in the calculation process.