> For the complete documentation index, see [llms.txt](https://yubit.gitbook.io/yubit/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://yubit.gitbook.io/yubit/derivatives-trading/futures-faq/what-is-auto-deleveraging-adl.md).

# What Is Auto-Deleveraging (ADL)?

Auto-Deleveraging (ADL) is a risk management mechanism used in derivatives trading to handle, in accordance with platform rules, the remaining losses not covered by the insurance fund when a forced liquidation results in a bankruptcy loss.

After a user’s position is forcibly liquidated, if the liquidation results in a bankruptcy loss, YUBIT will use the insurance fund, in accordance with its derivatives trading rules, to cover **a specified proportion or amount** of that loss. The insurance fund does not guarantee full coverage of every loss arising from a single liquidation.

For any remaining loss outside the coverage of the insurance fund, the system will trigger Auto-Deleveraging under platform rules. It will select positions held on the opposite side of the market according to the ADL ranking rules and reduce part of those positions to offset the portion of the liquidation loss not covered by the insurance fund.

ADL typically occurs during sharp market volatility, insufficient liquidity, large-scale liquidations, or other extreme market conditions. Its purpose is to control overall platform risk, maintain the stable operation of the derivatives market, and reduce the further impact of bankruptcy losses on the market and other users.

### Why is ADL necessary?

Under normal conditions, liquidation orders are executed in the market, and any remaining loss after liquidation is covered by the insurance fund. If sharp market volatility or insufficient liquidity causes losses to exceed the amount the insurance fund can bear, ADL is activated as the final risk-protection mechanism.

ADL helps protect the insurance fund, reduce the impact of extreme market conditions on lower-leverage users, and maintain the overall stability of the perpetual futures market.

### When may ADL be triggered?

ADL may be triggered in the following circumstances:

* A user’s position is forcibly liquidated;
* A bankruptcy loss occurs during the liquidation;
* Under platform rules, the insurance fund covers only a specified proportion or amount of that loss;
* The remaining loss not covered by the insurance fund must be handled by Auto-Deleveraging positions on the opposite side of the market;
* YUBIT determines that market liquidity, risk exposure, the status of the insurance fund, or other market conditions require ADL.
  * ADL is not an ordinary liquidation, and not every liquidation triggers ADL. The system executes Auto-Deleveraging under platform rules only when a bankruptcy loss from a liquidation must be handled through positions on the opposite side of the market. YUBIT has the right to determine the triggering, execution, termination, and relevant parameters of ADL based on market conditions, risk conditions, the status of the insurance fund, and its derivatives trading rules.

### How does ADL select positions to be reduced?

When ADL is triggered, the system selects positions from users holding positions on the opposite side of the market according to the ADL ranking rules. In general, the ADL ranking considers the following factors:

* Unrealized PnL ratio of the position;
* Effective leverage of the position;
* Position size;
* Position risk level or margin level.
  * In general, opposite-side positions with higher profits and higher effective leverage rank closer to the front of the ADL queue and are more likely to be auto-deleveraged.

**What is the ADL indicator?**

* The ADL indicator shows the approximate position of the current position in the Auto-Deleveraging queue.
* More illuminated bars indicate that the position ranks closer to the front of the ADL queue. If ADL is triggered, that position is more likely to be auto-deleveraged.
* The ADL indicator changes dynamically with factors such as market prices, account equity, position PnL, leverage level, and market positions. It shows only the current estimated risk and does not mean that Auto-Deleveraging will definitely occur.

**What happens after ADL?**

* If a user’s position is selected for ADL, the system may automatically reduce or close part or all of that position without additional confirmation from the user. Position profits will be settled according to the ADL execution price, and affected open orders may be canceled.
* ADL may occur without advance notice. After ADL is executed, YUBIT will **display or send relevant information to affected users through order records, trading history, or in-platform notifications**.
* Users should understand that ADL is a risk event that may occur in derivatives trading. Even if a position is profitable, it may be auto-deleveraged when required to handle a bankruptcy loss from a liquidation on the opposite side.

The ADL execution price is determined by YUBIT’s risk-control system according to its derivatives trading rules and market conditions. The actual execution record and applicable derivatives rules will prevail.

**About the insurance fund**

* The insurance fund is used to cover part of the bankruptcy losses arising during liquidation in accordance with platform rules. Its scope of use, coverage ratio, coverage amount, and applicable conditions are determined by YUBIT according to its derivatives trading rules and risk-control requirements.
* The insurance fund does not guarantee coverage of all liquidation losses. Losses outside its coverage may be handled through Auto-Deleveraging (ADL) or other risk-treatment mechanisms.

**How can I reduce the risk of ADL?**

Users can reduce the likelihood of Auto-Deleveraging by lowering position risk, for example:

* Reduce leverage;
* Reduce position size during periods of high volatility;
* Add margin, where supported, to reduce effective leverage;
* Partially take profit on highly profitable, highly leveraged positions;
* Use take-profit and stop-loss orders to manage risk;
* Monitor changes in the ADL indicator on the position page.
  * In general, the higher the position profit and effective leverage, the closer the position ranks to the front of the ADL queue. Reasonable control of leverage and position size can therefore reduce the risk of ADL.

**Risk warning**

Derivatives trading involves a high level of risk. Sharp market volatility, insufficient liquidity, large-scale liquidations, and system risk-control measures may all result in Auto-Deleveraging.

Before participating in derivatives trading, users should fully understand the applicable rules for forced liquidation, the insurance fund, and Auto-Deleveraging, and trade prudently based on their own risk tolerance. YUBIT will execute ADL in accordance with its derivatives trading rules and risk-control requirements, and YUBIT’s actual records will prevail.