When a position is taken over by the liquidation engine, insurance fund will be used to cover the extra cost of this liquidation process, i.e., if the position is closed at a worse price than the bankruptcy price. However, if the insurance fund is not enough, the ADL system will automatically starts and deleverage the counterparty positions of the liquidated position at the bankruptcy price of that position, by profit and leverage level priority.
The ADL mechanism has protected users from losing extra margins in their account if their position is being liquidated and also avoided the inflexibility over settlement in Socialised Loss mechanism.
When the balance of the insurance fund is not enough to cover the contract loss, the ADL system automatically deleverages opposing traders’ positions by profit and leverage priority.
Traders with the highest ranking in the system are prioritized and selected to deleverage
*The ADL indicator at the center of the orderbook will provide an ADL alert to your position based on the ranking of all positions (highest) you hold for the contract.
Sequence = Profit Percentage * Effective Leverage (For profit)
= Profit Percentage / Effective Leverage (For loss)
Effective Leverage = abs(Mark Value) / (Mark Value - Liquidation Price)
PnL Percentage = (Mark Value - Avg Entry Value) / abs(Avg Entry Value)
Mark Value = Position Value at Mark Price
Liquidation Value = Position Value at Liquidation Price
AVG Entry Value = Average price of your opening positions