Topics
    Auto-Deleveraging (ADL)
    bybit2024-04-24 15:59:08
    USDT ContractsInverse and USDC Contracts

    This article delves into the Auto-Deleveraging System (ADL) process for USDT contracts. Bybit's Auto-Deleveraging System (ADL) is designed to control the platform's overall risk during liquidation events in extreme market conditions that lead to insufficient insurance funds. It achieves this by selecting the opposing profitable positions based on the ADL ranking to close the position. By deleveraging opposing positions, ADL helps control risk and maintain the stability of the platform during periods of extreme volatility. 



    When will ADL be triggered?

    When a position is liquidated, the system will take over the position, and any excess losses beyond what the position margin can cover (meaning the position can't be closed at a price higher than the bankruptcy price) are absorbed by the insurance fund pool. If a large number of positions on the platform are liquidated simultaneously, resulting in excess losses exceeding what the position margins can cover, the insurance fund pool could become depleted. 

     

    If the insurance fund pool cannot fully cover all incurred losses, the system will initiate the ADL process. This process entails closing out profitable positions on the opposing side to offset the remaining losses. Hence, we can conclude that the ADL will be triggered only when the two criteria are met:

     

    1. A large number of positions are liquidated, causing the platform to experience significant contract losses. 

    2. The Insurance Fund is insufficient to cover potential losses from the liquidation.




    Insurance Fund

    Bybit’s Insurance Fund is a reserve of funds to mitigate the risk of massive liquidation, consisting of funds provided by Bybit and the excess margin from liquidated orders that have closed at a price better than the bankruptcy price. Visit this page to see the daily insurance fund balance and the inflows and outflows. You may also find more information on the insurance fund in this article




    How does Auto-Deleveraging (ADL) work?

    • Traders with the highest ranking in the system 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. 



    The ranking of ADL's opposing positions is determined based on a combination of account risk or position risk and the profitability of the position. The specific rules are as follows:

     

    Account Type 

    Margin Mode

    Calculations 

    Notes 

    UTA

    Isolated 

    Positions in Profit:

    Leveraged Returns = Position PnL (%) × Position Margin Rate


    Positions in Loss:

    Leveraged Returns = Position PnL / Position Margin Rate

    Position PnL (%)

    Long: (Mark Price - Entry Price) / Entry Price


    Short: (Entry Price - Mark Price) / Entry Price 


    Position Margin Rate

    Maintenance Margin for Current Position / (Initial Maintenance Margin + Additional Maintenance Margin) 

    UTA

    Cross 

    Positions in Profit:

    Leveraged Returns = Position PnL (%) × Account Maintenance Margin Rate (MMR)


    Positions in Loss:

    Leveraged Returns = Position PnL (%) / Account MMR

    Position PnL (%)

    Long: (Mark Price - Entry Price) / Entry Price


    Short: (Entry Price - Mark Price) / Entry Price 

    Standard Account

    Isolated 

    Position PnL: 

    Leveraged Returns = Position PnL (%) × Position Margin Rate


    Positions in Loss:

    Leveraged Returns = Position PnL (%) / Position Margin Rate

    Position PnL (%)

    Long: (Mark Price - Entry Price) / Entry Price


    Short: (Entry Price - Mark Price) / Entry Price 


    Position Margin Rate

    Maintenance Margin for the Current Position / (Initial Maintenance Margin + Additional Maintenance Margin) 

    Standard Account

    Cross

    Positions in Profit:

    Leveraged Returns = Position PnL (%) × Account MMR


    Positions in Loss: 

    Leveraged Returns = Position PnL / Account MMR

    Position PnL (%)

    Long: (Mark Price - Entry Price) / Entry Price


    Short: (Entry Price - Mark Price) / Entry Price 


    Account Margin Rate

    (Maintenance Margin under Cross Margin) / (Account Balance - Initial Margin under Cross Margin - Additional Maintenance Margin + UPL)

     

    Notes: 

    Opposing positions that are experiencing losses still have a possibility of being selected as the target position for ADL. However, because the rate of return on positions experiencing losses is negative, profitable positions will be prioritized over the loss-making positions in the ranking.




    How do I reduce my ADL ranking?

    1) ADL is a mechanism that will only be activated when there are insufficient insurance funds to fully cover the excess contract losses of a liquidated position. 

    • Maintaining a substantial Insurance Fund reduces the likelihood of ADL.

    • You may view the history, in- and outflows of the Bybit Insurance Fund here.


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

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

    • A partial closing of a position in profits does not lower the ADL ranking but reduces the number of contracts that are exposed to ADL risk.

    • If partial closing does not address your concerns, please consider doing a full closure of your existing positions. Read more here to understand how to do a full position closure on Bybit. 

     

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

     

    On the App

     

     


    On the Website

     

     

    Was it helpful?
    yesYesyesNo