Auto-Deleveraging

Auto-deleveraging, or ADL, is the last-resort mechanism a derivatives exchange uses when a liquidation cannot be closed in the market and the insurance fund cannot cover the gap. Rather than leave the deficit unpaid, the venue force-closes some profitable positions on the opposite side at the bankruptcy price, usually ranking candidates by profit and leverage so the highest-ranked are closed first. The traders affected are given no choice and no warning. Being auto-deleveraged is not a malfunction — it is documented product behaviour, and it means a hedge can be removed at the worst possible moment.