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  1. NFEX Perpetual Guide

Auto-deleveraging(ADL)

What is Auto-delveraging and how does it work?

PreviousInsurance FundNextFee Structure & Calculation

Last updated 2 years ago

When a trader's position is liquidated, the liquidation engine takes over the position. If the liquidation order cannot be filled at the bankruptcy price and the insurance funds run out, the ADL system automatically deleverages opposing traders' positions based on profit and leverage priority.

All orders at risk of ADL will be placed in a queue. The priority ranking of a trader's position is calculated based on both profit and leverage, with more profitable and higher-leveraged traders being deleveraged first. The priority formula is:

Ranking=PnLPercentageƗEffectiveLeverageRanking = PnL Percentage\times Effective LeverageRanking=PnLPercentageƗEffectiveLeverage

Where:

  • PnLPercentage=UnrealizedPnLPercentage(ROI)PnL Percentage = Unrealized PnL Percentage (ROI)PnLPercentage=UnrealizedPnLPercentage(ROI)

  • EffectiveLeverage=MarkValueabs(MarkValueāˆ’BankruptValue)Effective Leverage = \frac{Mark Value}{abs (Mark Value - Bankrupt Value) } EffectiveLeverage=abs(MarkValueāˆ’BankruptValue)MarkValue​

  • MarkValueMark Value MarkValue= Position Value at Mark Price

  • BankruptValueBankrupt Value BankruptValue= Position Value at Bankruptcy Price

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