What is Automatic Deleveraging (ADL)?
Automatic Deleveraging (ADL) is Bybit's risk management protocol for perpetual and delivery contracts. It activates during extreme market conditions when insurance funds cannot cover excessive liquidation losses. ADL identifies and closes profitable or high-leverage opposing positions based on a priority ranking system.
The Role of Insurance Funds
Insurance funds serve as a financial buffer consisting of:
- Capital provided by Bybit
- Excess margin from liquidated orders executed above bankruptcy prices
These funds absorb losses from liquidated positions that cannot be closed at sustainable prices. The insurance fund balance varies by trading pair:
- Some pairs share pooled funds
- Others maintain independent funds based on risk profiles
Monitoring Insurance Funds
Track insurance fund balances through:
- Historical records
API queries:
- OpenAPI/Web: Updates every minute (independent pools) or 24 hours (shared pools)
- WebSocket: Real-time updates (independent pools only)
When Does ADL Activate?
ADL triggers only when:
- Multiple positions face liquidation simultaneously
- Insurance funds become insufficient to cover losses
The insufficiency condition occurs when:
Insurance Fund Balance + Position Margin + Unrealized PNL ≤ 0How ADL Works: Step-by-Step Process
- Ranking Selection: The system prioritizes opposing positions based on leveraged yield percentage
- Position Matching: Liquidated positions pair with highest-ranked opposing positions
- Settlement: Positions close at bankruptcy prices
- Balance Adjustment: Price differences between bankruptcy and market prices replenish insurance funds
Key characteristics:
- ADL-ranked traders receive email notifications
- All active orders cancel automatically
- Traders may re-enter markets freely post-ADL
Calculating Bankruptcy Prices
For Long Positions:
Bankruptcy Price = [(Entry Price × Position Size) - Position Margin - Wallet Balance] ÷ Position SizeExample Calculation:
| Parameter | Value |
|---|---|
| Trading Pair | ABCUSDT |
| Direction | Long |
| Position Size | 100 |
| Entry Price | $500 |
| Mark Price | $400 |
| Position Margin | 1,000 |
| Wallet Balance | 100 |
| Bankruptcy Price | [(500×100)-1,000-100]/100 = $489 |
Note: If bankruptcy price deviates >5% from mark price, the system uses mark price for settlement.
ADL Ranking Methodology
The system prioritizes positions using leveraged yield calculations:
Isolated Margin Mode:
- Profitable Positions: Leveraged Yield = PNL% × Margin Ratio
- Losing Positions: Leveraged Yield = PNL% ÷ Margin Ratio
Cross/Portfolio Margin Mode:
- Profitable Positions: Leveraged Yield = PNL% × Account MMR
- Losing Positions: Leveraged Yield = PNL% ÷ Account MMR
PNL% Formulas:
- Long: (Mark Price - Entry Price) / Entry Price
- Short: (Entry Price - Mark Price) / Entry Price
Practical ADL Scenario
Consider 6 short positions needing deleveraging:
| Trader | Contracts | ADL Rank | Percentile |
|---|---|---|---|
| F | 5,000 | 1 | 100% |
| A | 5,500 | 6 | 20% |
| B | 2,500 | 5 | 40% |
| C | 2,000 | 4 | 60% |
| D | 3,000 | 3 | 60% |
| E | 2,000 | 2 | 80% |
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Case 1: 5,000 contracts need ADL
- Trader F's entire position gets closed
- No impact on other traders
Case 2: 10,000 contracts need ADL
- Traders F, E, and D get partially/fully closed
Fee structure:
- Maker fees charged to ADL-selected traders
- Taker fees charged to liquidated traders
Managing ADL Exposure
Reduce ADL risk through:
- Leverage Reduction: Lowers ranking immediately
- Partial Closing: Decreases contract volume at risk
- Full Position Closure: Eliminates exposure completely
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FAQ Section
Q: Can profitable positions avoid ADL?
A: No. While losing positions rank lower, all opposing positions remain eligible based on leveraged yield calculations.
Q: How often does ADL occur?
A: Extremely rare, only during unprecedented volatility when insurance funds deplete.
Q: Does ADL affect my account balance?
A: Positions close at bankruptcy prices, which may differ from current market prices. Any residual funds remain in your account.
Q: Can I opt-out of ADL?
A: No, but you can monitor and adjust your ADL ranking through position management.
Q: Are there fees for ADL execution?
A: Yes - standard maker/taker fees apply based on your role in the transaction.
Key Takeaways
- ADL is a last-resort mechanism protecting platform stability
- Insurance funds serve as the first line of defense
- Leverage management directly impacts ADL risk
- Real-time monitoring tools help traders stay informed
For traders seeking to minimize ADL exposure, maintaining moderate leverage and actively monitoring positions proves most effective. By understanding these mechanisms, market participants can make more informed trading decisions in volatile conditions.