Many traders are blindsided when profitable positions are suddenly closed without warning during major market swings. This occurs due to Auto-Deleveraging rules that target winning accounts to protect platform stability when insurance funds fail during periods of extreme and unpredictable market volatility.

Getting through these volatile waters requires a deep understanding of the specific principles governing forced settlements and account rankings on modern derivative platforms. Mastering these hidden mechanics is the only way to ensure your profits remain secure when the market faces systemic stress.

Discover how to protect your trades from these automated liquidations. 👇

What is Auto-Deleveraging (ADL)?

Auto-Deleveraging (ADL) is an exchange-level risk mechanism used in leveraged futures. If liquidations create a shortfall because the bankruptcy price does not cover losses and the insurance fund cannot absorb it, the exchange reduces opposing traders’ positions automatically.

ADL closes positions on the winning side to offset the deficit without forcing messy market sells into a thin order book. Traders are typically ranked by a score that blends unrealized profit and leverage, with higher-ranked accounts getting reduced first.

A concrete example came on October 10, 2025, when a rapid sell-off liquidated more than $19 billion of leveraged crypto exposure in about a day. As liquidity evaporated, ADL kicked in and some profitable, well-hedged shorts were reduced to protect exchange solvency.

How Does ADL Work in Crypto?

The auto-deleveraging process triggers when extreme market volatility depletes insurance funds, forcing exchanges to automatically close the most profitable, high-leverage opposing positions.

This complex mechanism follows a specific multi-step operational sequence:

• Liquidation Failure: The process starts when a position hits bankruptcy price and standard liquidation fails to find buyers or insurance fund coverage.
• Insurance Depletion: ADL only activates when the platform's dedicated insurance fund lacks sufficient capital to absorb the negative equity from bankrupt traders.
• Counterparty Selection: The system automatically identifies winning traders on the opposite side of the liquidated trade to act as involuntary exit liquidity.
• Priority Ranking: Potential candidates are ranked based on their unrealized profit percentages and the amount of effective leverage currently applied to positions.
• Bankruptcy Price Execution: Selected winning positions are closed specifically at the bankruptcy price of the liquidated account, rather than the current mark price.
• Unsettled Profit Realization: Traders affected by ADL have their unrealized gains instantly converted into realized profits as their active positions are partially closed.
• Order Cancellation: Once a trader is selected for deleveraging, all their remaining open orders for that specific pair are automatically canceled.
• Automated Notification: Exchanges provide immediate alerts via email or platform notifications to inform selected users that their positions were closed through ADL.

How to Avoid Liquidations From ADL

Understanding how platforms like Bybit rank traders allows you to strategically adjust your account metrics to avoid being selected during major market volatility.

Use these essential strategies to protect your winning trades:

1. Reduce Leverage: Lowering leverage is the most effective way to drop in rank. Keep your leverage under 5x to minimize potential selection.
2. Take Profits: Closing portions of winning trades reduces your unrealized profit percentage. This lowers your priority in the automated deleveraging queue significantly.
3. Increase Margin: Adding collateral to active positions lowers effective leverage. Maintaining a higher margin ratio ensures your account stays off priority list.
4. Monitor Indicators: Most exchanges provide visual light systems to show ADL risk. If 4 lights are active, reduce your position size immediately.
5. Hedge Positions: Opening an opposite contract can neutralize directional risk. This balanced approach reduces the total profit percentage that ADL systems track.
6. Diversify Assets: Spreading capital across 3 or 4 tokens reduces individual exposure. This prevents a 1-price spike from triggering specific liquidations.
7. Limit Size: Keeping individual position sizes small compared to your total balance improves safety. Avoid concentrating 50% of equity into 1 trade.

Pros and Cons of Auto-Deleveraging (ADL)

ADL forces a difficult trade-off between securing the entire exchange's financial health and sacrificing the individual gains of the most successful high-leverage participants.

Benefits of ADL

Systemic stability remains the greatest advantage as ADL prevents total platform collapse during black swan events. By resolving bankrupt positions when insurance funds fail, the mechanism ensures the exchange stays solvent, protecting 100% of user deposits from massive platform-wide failure.

ADL offers a more equitable alternative to socialized loss systems used in the past. Instead of deducting a percentage from every profitable trader, it only affects those with the highest leverage and profit, leaving lower-risk participants completely untouched during volatility.

The process maintains market continuity by preventing orders from stalling when no buyers exist at bankruptcy prices. By automatically matching winning positions with failing ones, the exchange prevents 2025 market gaps, ensuring that the trading ecosystem remains functional and liquid.

Drawbacks of ADL

The primary disadvantage involves the unfair penalization of investors who are winning their trades. Being forcibly exited from a position simply because you are profitable undermines the core objective of trading, turning a calculated victory into an involuntary market exit.

Traders face serious opportunity costs when ADL closes their contracts at the bankruptcy price. This prevents them from capturing further upside if the trend continues, often leaving them with less profit than they would have earned if their positions remained open.

The system introduces a layer of unpredictability that complicates advanced risk management strategies. Professional traders must constantly monitor their ranking lights, as one sudden price spike can trigger 5 lights and close their largest positions, disrupting carefully planned long-term strategies.

How to Read Your ADL Priority Indicator

Your ADL priority indicator shows where your position sits in the auto-deleveraging queue. It does not predict liquidation by itself. It tells you how likely your position is to be reduced if ADL is triggered.

The visual tool breaks down your risk level using these stages:

• More lights lit = higher priority for ADL: On Binance, the indicator ranks you from lowest to highest queue priority, and if all lights are lit your position may be reduced during an ADL event.
• 1 to 2 Lights: Having 1 or 2 lights lit indicates low risk, placing your profitable position in the bottom 80% of the queue.
• 3 Lights Active: Seeing 3 lights signifies moderate risk, meaning your account is currently ranked in the middle 40% to 60% of traders.
• 4 Lights Warning: 4 orange lights indicate high risk, alerting you that your position is now in the top 40% for potential deleveraging.
• 5 Lights Priority: All 5 lights lit means you are in the top 20%, making you the first target for forced closure during volatility.
• PnL Percentage Factor: A higher profit percentage increases your ranking, as the system targets the most successful traders to balance the exchange's books.
• Effective Leverage Component: Your rank scales with leverage; using 50x instead of 5x significantly boosts your likelihood of seeing all 5 lights activate.
• Reducing Your Ranking: You can lower your priority by closing partial profits or adding margin to decrease your position's effective leverage instantly today.

What To Do If Your Crypto Positions Gets ADL’d

Getting ADL’d means the exchange automatically reduced or closed part of your position to cover a system deficit after extreme liquidations, often at a bankruptcy-based price. Your priority now is understanding what changed, restoring risk controls, and preventing a broken hedge.

First, confirm the reduction details: size closed, average price, fees, and whether any linked orders were canceled. Save a screenshot or export trade history. Then recalc remaining exposure, margin ratio, and liquidation price before placing new orders.

If you were hedged, assume the hedge is now off. Rebalance by adjusting the opposite leg, reducing leverage, or adding margin. Rebuild stops and take-profits using mark price references. Afterward, reduce ADL risk with smaller size, lower leverage, and avoiding crowded volatility.

Does My Exchange Support Auto-Deleveraging?

Most major derivatives platforms implement ADL as a final backstop to ensure platform solvency when insurance funds fail during tremendous volatility.

Review this list to see how different exchanges manage risk:

• Binance: This platform uses a 5-light indicator system to rank traders based on their specific profit and effective leverage levels.
• Bybit: Traders face deleveraging when the insurance fund depletes, with high-profit accounts matched against bankrupt positions at the current bankruptcy price.
• OKX: The exchange employs an automated system that prioritizes closing the most profitable counterparty positions to maintain a balanced market ledger.
• Hyperliquid: As a decentralized leader, it recently activated a cross-margin ADL mechanism to protect its HLP vault during rapid price swings.
• Lighter: This high-speed order book DEX utilizes a specific protocol-level deleveraging system to ensure all winning trades remain fully collateralized.
• Bitget: Users are ranked in a queue where those with the highest risk-to-reward ratios are selected first for involuntary contract closure.
• BitMEX: As a pioneer of the mechanism, it continues to use ADL to prevent socialized losses by targeting high-leverage winning accounts.
• Deribit: The options-focused exchange maintains a robust insurance fund but retains ADL protocols to handle extreme tail risks in crypto markets.
• CoinEx: Supports ADL in futures trading; liquidation engine takes over positions, and ADL activates if losses cannot be covered.

Final Thoughts

Auto-Deleveraging serves as a vital safeguard that ensures the survival of crypto trading platforms by preventing systemic insolvency during periods of unprecedented market chaos.

While being forcibly closed out of a winning trade is frustrating, the alternative is a total platform collapse where all users lose access to their entire account balances.

By understanding the priority indicators and managing your leverage, you can navigate these market volatility events while keeping your profitable positions secure.