Auto-Deleveraging (ADL)
Understanding ADL:
ADL serves as a risk management mechanism that safeguards the overall stability of the RateX platform. In the event of unforeseen circumstances or extreme market movements that could lead to a rapid depletion of the insurance fund, ADL automatically deleverages user positions. This helps to mitigate potential losses and maintain platform solvency.
The ADL Process:
ADL Ranking: User positions are ranked based on their leveraged profits, considering both the profit/loss ratio (PnL) and the leverage employed. Positions with the highest leveraged profits receive a higher ranking, making them more susceptible to ADL if triggered. Users can know the position's ADL ranking through the ADL Indicator on RateX user interface.
ADL Trigger: When market conditions necessitate ADL activation, the system automatically matches the liquidation price of at-risk positions with counterparties holding the highest ADL ranking. This eliminates the need for placing orders in the open market and waiting for suitable price matches, ensuring a more efficient liquidation process.
Similar to perpetual futures, ADL applies to both long and short yield positions under isolated margin mode.
Under cross margin mode, ADL only targets the excess portion of partially hedged positions, leaving the fully hedged portion unaffected.
Fees and Notifications: Users undergoing ADL will have their positions deleveraged automatically. Any profits generated from the liquidation are credited to their account balance. Users will be notified via email regarding the auto-deleveraged position and the liquidation price. They can also access a detailed record of the event within the order history categorized as "auto-deleveraging."
Post-ADL Trading: Following ADL completion, users are free to resume their trading activities within the RateX platform.
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