The following text is about Auto-deleveraging (ADL).
1. Trigger conditions
When a user is forced to close a position, the remaining position will be taken over by the liquidation system. If the forced liquidation position cannot be liquidated in the market, and the mark price reaches the bankruptcy price, the automatic deleveraging system will automatically reduce the leverage of investors holding positions in the opposite direction. In other words, the targets of futures liquidation are investors holding positions in the opposite direction..
The order of liquidation will be determined based on the leverage and profit ratio.
2. Deleveraging process
1). Liquidation is carried out based on the bankruptcy price of the forced liquidation position. At this point, if the margin remains insufficient, the automatic deleveraging strategy is triggered.
2). The counterparty calculates the PnL ranking of effective leverage based on the rate of return and effective leverage. Aggressive trading strategies and the most profitable positions are prioritized in the ADL sequence (Automatic Deleveraging Queue).
3). The ADL is executed on the party ranked highest in effective leverage and profit and loss, closing the position at the bankruptcy price.
Isolated margin mode: When closing positions via isolated ADL, long and short positions are calculated separately and do not affect each other.
Cross margin mode: When closing a position via cross ADL, calculations are based on the net position.
Example: If you currently hold 100 long positions and 300 short positions. The net position is short. ADL sorting is based on short positions. This means that if the counterparty’s long position is liquidated, it will have an impact, while the counterparty’s short position will be liquidated without impact.
ADL Auto deleveraging system
When investors are forced to liquidate their positions, the remaining portions are taken over by WEEX’s forced liquidation system. If the forced liquidation position cannot be closed in the market and the mark price reaches the bankruptcy price, the automatic deleveraging system will reduce the position of investors holding positions in the opposite direction. Reducing a position will be based on leverage and profit ratio.
The process of reducing a position is as follows:
1. The position is closed at the investor's forced liquidation bankruptcy price. At this point, if the insurance fund remains insufficient, the automatic reduction strategy is triggered..
2. The counterparty calculates the profit and loss ranking of effective leverage based on the yield and effective leverage ratio. The ADL sequence will prioritize investors with aggressive trading strategies and the highest profits.
3. Automatically reduce the position at the bankruptcy price for the ADL-executed party and the counterparty with the highest effective leverage profit and loss.
Sorting of auto deleveraging system mechanisms
Profit and loss calculation:
Sort = Profit percentage x Effective leverage (if Profitable)
= Profit percentage ÷ Effective leverage (if loss)
Notice:
Effective leverage = ABS mark price ÷ (mark price - bankruptcy price)
Profit percentage = (Mark price - Average open value) / ABS (Average open price)
mark price = position price at mark price
Bankruptcy price = position price at bankruptcy price
Average open price = position price at the average available price