To uphold market stability and fairness, Monochrome.exchange may activate the Auto-Deleveraging system when a user’s position carries excessive risk that cannot be adequately managed through other measures. For example margin top-ups or forced liquidation. This guide outlines how ADL works, its processes, and steps you can take to avoid being deleveraged.
What is Auto-Deleveraging (ADL)?
Auto-Deleveraging is a risk management feature used in perpetual contracts trading. It comes into play when a liquidated position ends in a negative balance, that is, the liquidation process fails to cover the total loss. In such cases, the system reduces opposing positions (the "deleveraged positions") held by highly leveraged, profitable traders to absorb the remaining deficit. This process helps balance the liquidated position against open opposing ones, protects traders using lower leverage, and promotes a fair trading environment. ADL maintains market stability and liquidity by automatically adjusting positions on both sides of the trade, without relying solely on the order book.
How is ADL Priority Determined?
Monochrome.exchange’s ADL system uses a balanced approach based on "a comprehensive ranking of Profit & Loss Rate and Leverage" to determine the deleveraging order. All profitable opposing positions are grouped into long and short sides and ranked from highest to lowest priority based on two main factors:
- Profit & Loss Rate (PnL %): Unrealized profit as a percentage of the position’s value.
- Leverage: The multiple applied to the position.
2.1 ADL Process Overview
When a position is liquidated and cannot be closed at or above the bankruptcy price, the system turns to ADL.
Insurance Fund & ADL Trigger Mechanism:
The ADL mechanism is triggered specifically when the insurance fund is being depleted faster than a predefined threshold.
Once activated, ADL reduces positions held by traders on the opposite side of the market. The sequence for deleveraging is determined based on leverage and profit ratio.
2.2 ADL Ranking Formula
The system uses the following logic to assign ADL priority:
- If profitable: ADL Rank = Profit Percentage × Effective Leverage
- If unprofitable: ADL Rank = Profit Percentage ÷ Effective Leverage
Where:
- Effective Leverage = abs (Mark Value ÷ (Mark Value – Bankruptcy Value))
- Profit Percentage = (Mark Value – Average Entry Value) ÷ abs (Average Entry Value)
- Mark Value = Position value at mark price
- Bankruptcy Value = Position value at bankruptcy price
- Average Entry Value = Position value at average entry price
This method prioritizes positions with high profit rates and high leverage, encouraging responsible leverage use and equitable risk sharing, safeguarding market stability and liquidity.
The ADL ranking is based on each position’s leverage and returns. Note that losing positions on the opposite side still risks auto-deleveraging. However, because they yield negative returns, the ADL system prioritises profitable positions when calculating rankings.
How to Identify if Your Position is at Risk of ADL?
On the Monochrome trading interface, you can monitor your position status:
ADL Indicator
- In the "Current Positions" area, if a position is identified as a potential ADL candidate, the indicator will light up based on the ranking (taking the highest ranked among all your positions for that contract). The indicator constantly displays your position in the ADL queue, representing your priority level in 20% increments.
- If all or most lights are lit, your position is in the highest risk tier, and you are likely to be deleveraged if the liquidated positions cannot be closed on the market.
- A lit indicator puts your profitable position at the top of the list for deleveraging during extreme market events that trigger ADL.
How to Avoid Auto-Deleveraging?
While ADL is a protective measure for the platform, you can minimize your exposure by:
A. Using Lower Leverage – High leverage increases ADL priority. Moderate leverage helps keep your rank lower.
B. Taking Profits Periodically – Partially close profitable positions to lock in gains and lower your unrealized PnL %.
C. Maintaining Adequate Margin – Keep sufficient funds in your account to avoid margin calls and forced liquidation.
D. Monitoring Risk Levels – Regularly check your margin ratio and liquidation price, especially during high volatility.
ADL vs. Forced Liquidation
| Feature | Auto-Deleveraging (ADL) | Forced Liquidation |
| Target | Profitable, high-leverage traders based on ADL rules | Traders with insufficient margin |
| Condition | A liquidation results in negative equity loss exceeding the insurance fund's preset threshold. | Margin Ratio ≤ Maintenance Margin Rate |
| Purpose | Transfer loss to profitable traders; maintain system integrity | Forcibly close risky positions to prevent further loss |
| Position status | Partial closure of profitable position | Typically, full closure of loss-making positions |
Quick Recap
Auto-Deleveraging is a key safety mechanism in perpetual contracts trading, designed to protect the common interests of all traders and ensure the stable operation of the trading platform. We encourage all users to understand how ADL works and manage their positions responsibly through sensible leverage and proactive risk controls.
Risk Disclosure: Trading digital currency derivatives involves high leverage and carries significant risk, including total loss of capital. You are solely responsible for your trading decisions. Monochrome assumes no liability for any financial losses resulting from trading activity. Please be aware that certain products or promotions may not be available in all regions. Ensure you fully understand the risks and evaluate your financial capacity before engaging in trading.
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