What is auto-deleverage mechanism？
When a user’s position is being liquidated, the user’s remaining position will be taken over by the system. If the position cannot be executed at the liquidation price in the market（this means there is not enough orders on the book) and the insurance fund is insufficient to cover the loss from this position, the Auto-Deleverage (ADL) mechanism will kick in. ADL will deleverage (close out users’ positions) users with positions on the opposite side, the deleverage queue is based on leverage and PnL.
Detailed queuing formula:
= PNL Percentage * Effective Leverage (if PNL percentage > 0)
= PNL Percentage / Effective Leverage (if PNL percentage < 0)
PNL Percentage = （Unrealized profit and loss)/(Cumulative Open Value +/- Margin Added/Removed)
Cumulative Open Value = Amount of Contracts * Average Open Price * Contract Multiplier
Difference between ADL and clawback?
Clawback mechanism distributes the loss to all users with profits in the platform according to position sizes. This mechanism occurs after settlement and transfers part of the user’s profit to share the losses; therefore, the profits of the position cannot be transferred out before settlement.
The auto-deleverage mechanism will prioritize deleveraging users with high leverage and high profits. Since this mechanism is realized by closing out positions, therefore the profits can be transferred out at any time.