This article explains how Auto-Deleveraging (ADL) works for perpetual and futures contracts on Bybit. It outlines what triggers ADL, how opposing positions are selected, and how users can manage their exposure to it.

 

 

 

What is the ADL Mechanism?

Bybit's Auto-Deleveraging System (ADL) helps control the platform's overall risk during liquidation events in extreme market conditions when the insurance fund is unable to absorb excessive liquidation losses. ADL works by automatically deleveraging profitable or highly leveraged positions on the opposite side of the liquidated positions, based on the ADL ranking.

 

 

 

What is an Insurance Fund?

The Insurance Fund is a reserve pool funded by Bybit and excess margin from liquidated positions closed at a price better than the bankruptcy price. It absorbs losses that exceed the margin of liquidated positions. For more information about the insurance fund, please visit here. 

 

You can monitor the fund’s balance on the Insurance Fund History page. Some trading pairs have shared insurance fund pools, while some have isolated insurance fund pools, allocated based on the risk profile of each project.

 

You can also query for the Bybit insurance pool data through the API:

• OpenAPI & Web:

  • Isolated pool: Updated every minute.

  • Shared pool: Updated every 24 hours.

• WebSocket Push:

  • Isolated pool: Pushes updates every second.

  • Shared pool: No push updates.

 

 

 

 

When will ADL be triggered?

When a position is liquidated, the system takes over the position. Any loss beyond the position margin (meaning the position can't be closed at a price higher than the bankruptcy price) is covered by the insurance fund. If many positions are liquidated simultaneously, the losses may exceed what the insurance fund can absorb.

 

Once the insurance fund pool cannot fully cover all incurred losses, the system will initiate the ADL process. As a result, we can conclude that the ADL will be triggered only when the Insurance Fund is insufficient to cover potential losses from the liquidation.

 

The insurance fund is considered insufficient when the combined value of the wallet balance, position margin, and unrealized PnL of the taken-over position (i.e., the insurance fund) is less than or equal to zero:

Insurance Fund’s Wallet Balance + Position Margin + Unrealized PnL ≤ 0

 

 

 

 

How does ADL work?

When ADL is triggered, liquidated positions are taken over and closed by matching with opposing profitable or highly leveraged positions, i.e., the Deleveraged Positions. Once a match between a liquidated position and an opposing deleveraged position is made, both positions are offset against each other and closed at the bankruptcy price of the insurance funds. 

 

In summary:

• Traders with the highest ADL ranking are first selected for deleveraging. Traders can refer to the ADL priority lights on their positions to gauge their ADL rankings. 

• The ADL ranking is based on the leveraged return. Accounts with higher leverage returns will have higher ADL rankings.

• The selected positions will be settled at the bankruptcy price of the liquidated positions taken over by the system. 

• The amount difference between positions closed automatically at bankruptcy price and the market price will contribute to the insurance fund pool to cover the excess losses.

• Traders whose positions are being selected for ADL will receive email notifications and have all of their active orders closed. They are free to re-enter the market to trade. 

 

 

 

How is the insurance fund’s Bankruptcy Price calculated?

Using a long position as an example, if:

Insurance fund’s Position Margin + Unrealized PnL + Wallet Balance = 0,

 

Where,

Unrealized PnL upon Bankruptcy = (Bankruptcy Price – Entry Price) × Position Size

 

Formula:

Bankruptcy Price = [(Entry Price × Position Size) – Position Margin – Wallet Balance] ÷ Position Size

Note: If the calculated Bankruptcy Price deviates more than 5% from the Mark Price (i.e., the bankruptcy price is worse than the mark price by more than 5%), the platform will settle the deleveraged position with the Mark Price.

 

Example

 

 

 

 

How is ADL ranking determined?

The ADL ranking is determined based on the leveraged return of the position. Please note that opposing loss-making positions may still be selected, but profitable ones are prioritized.

 

The specific rules are as follows:

 

 

 

Example

With the assumption that there are 6 short positions on the exchange, the trader with the highest ranking in the system is prioritized and selected to deleverage first. The auto-deleveraging ranking is derived in order of highest leveraged return. The opposing position of the selected trader will be deleveraged at the bankruptcy price of the liquidated position.

 

 

Assume the insurance fund takes over long positions of 5,000 contracts, but the insurance fund is unable to fully cover the losses.

 

According to the ADL ranking table, Trader A ranks highest in the auto-deleveraging queue. Trader A will be selected by the ADL system, and 5,000 contracts will be forcefully closed by matching with the liquidated positions The remaining 500 contracts in Trader A’s position will be retained. After being auto-deleveraged, Trader A still uses the same margin but holds a smaller position. As a result, Trader A may no longer be the top-ranked trader in the ADL queue.

 

Similarly, if 10,000 contracts need to be auto-deleveraged, Traders A, B, and C will all be selected.

 

The maker fee will be charged to the ADL traders whose positions are reduced, while the taker fee will be charged to the account of the trader whose liquidation triggered the ADL. Traders who experience auto-deleveraging will receive notifications via email and/or SMS. All their active orders will be canceled, and they are free to re-enter the market at any time.

 

 

 

 

How to check your ADL ranking

Traders can refer to the ADL ranking of each position from their position tab.

 

On the App

 

 

 

On the Website

 

 

 

 

 

 

How to reduce ADL exposure?

You can reduce your exposure to ADL by lowering your leverage or doing a partial closing of your positions in profit.

• Lowering the leverage will lower the ADL ranking in real-time

• Partial closing of your highly leveraged position to reduce the number of contracts exposed to ADL risk (but does not lower the ADL ranking).

• If partial closing does not address your concerns, please consider doing a full closure of your existing positions.