When you trade with leverage on a crypto exchange, you’re borrowing money to amplify your position. But if the market moves hard against you, the exchange doesn’t just let you lose everything—it steps in. That’s where Auto-Deleveraging, a risk control system used by leveraged crypto platforms to forcibly close losing positions before they collapse the system. Also known as ADL, it’s the last line of defense when liquidations aren’t enough. Without it, one big crash could wipe out entire liquidity pools and leave solvent traders holding the bag.
Auto-Deleveraging doesn’t target everyone. It kicks in only when the exchange’s insurance fund is empty and a trader’s position is so deeply underwater that even liquidating it won’t cover the loss. The system then looks at the most profitable traders on the opposite side of the trade—those who’ve made money from the same market move—and starts reducing their profits to cover the gap. It’s not a punishment; it’s a mechanical reset. Platforms like Bybit, Binance, and OKX use it because they handle massive volumes of margin trading. If they didn’t, a single bad trade could trigger a chain reaction of defaults.
It’s not the same as liquidation. Liquidation happens when your position hits a preset price and gets closed automatically to stop your losses. Auto-Deleveraging happens after that—when the exchange itself is at risk. Think of it like a firebreak: when one house burns down, they tear down the next one to stop the fire from spreading. You didn’t cause the crash, but you’re still affected because the system has to survive.
Why does this matter to you? If you’re using leverage, you need to know who’s on the other side of your trade. The bigger the platform, the more likely ADL will trigger during volatility. You might win big on a rally, but if the market turns, your profits could be clipped to save someone else’s failed bet. That’s why smart traders avoid platforms with thin liquidity or high leverage ratios. They watch the funding rates, check the insurance fund balance, and stay away from exchanges that rely too heavily on ADL to stay solvent.
It’s also tied to how DeFi protocols handle risk. While centralized exchanges use ADL as a last resort, many DeFi platforms just let positions liquidate outright—no safety net. That’s why some traders prefer centralized platforms: they have layers of protection, even if those protections sometimes hurt the winners. Understanding Auto-Deleveraging isn’t just about avoiding losses—it’s about knowing how the system really works when things go wrong.
Below, you’ll find real-world examples of how ADL has triggered during major market moves, reviews of exchanges that use it, and tips to protect your trades when volatility hits. This isn’t theory—it’s how money changes hands when the market breaks.
Liquidation engines automatically close leveraged crypto positions when collateral drops too low. Learn how they work on centralized exchanges vs. DeFi, why ADL happens, and how to avoid getting wiped out.
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