USDT Contracts

This article delves into the ADL process for USDT contracts. Bybit Kazakhstan's Auto-Deleveraging System (ADL) is designed to control the platform's overall risk during liquidation events in extreme market conditions that lead to insufficient insurance funds. It achieves this by selecting the opposing profitable positions based on the ADL ranking to close the position. By deleveraging opposing positions, ADL helps control risk and maintain the stability of the platform during periods of extreme volatility.

 

 

 

 

When will ADL be triggered?

When a position is liquidated, the system will take over the position, and any excess losses beyond what the position margin can cover (meaning the position can't be closed at a price higher than the bankruptcy price) are absorbed by the insurance fund pool. If a large number of positions on the platform are liquidated simultaneously, resulting in excess losses exceeding what the position margins can cover, the insurance fund pool could become depleted. 

 

If the insurance fund pool cannot fully cover all incurred losses, the system will initiate the ADL process. This process entails closing out profitable positions on the opposing side to offset the remaining losses. Hence, we can conclude that the ADL will be triggered only when the two criteria are met:

 

1. A large number of positions are liquidated, causing the platform to experience significant contract losses. 

2. The Insurance Fund is insufficient to cover potential losses from the liquidation.

 

 

 

 

Insurance Fund

Bybit Kazakhstan’s Insurance Fund is a reserve of funds to mitigate the risk of massive liquidation, consisting of funds provided by Bybit Kazakhstan and the excess margin from liquidated orders that have closed at a price better than the bankruptcy price. Visit this page to see the daily insurance fund balance and the inflows and outflows. You may also find more information on the insurance fund in this article.

 

 

 

 

How does Auto-Deleveraging (ADL) work?

• Traders with the highest ranking in the system are first selected for deleveraging. Traders can refer to the ADL priority lights on their positions to gauge their ADL rankings. 

• The ADL ranking is based on the leveraged return. Accounts with higher leverage returns will have higher ADL rankings.

• The selected positions will be settled at the bankruptcy price of the liquidated positions taken over by the system. 

• The amount difference between positions closed automatically at bankruptcy price and the market price will contribute to the insurance fund pool to cover the excess losses.

• Traders whose positions are being selected for ADL will receive email notifications and have all of their active orders closed. They are free to re-enter the market to trade. 

 

 

The ranking of ADL's opposing positions is determined based on a combination of account risk or position risk and the profitability of the position. The specific rules are as follows:

 

 

Notes:

Opposing positions that are experiencing losses still have a possibility of being selected as the target position for ADL. However, because the rate of return on positions experiencing losses is negative, profitable positions will be prioritized over the loss-making positions in the ranking.

 

 

 

 

How do I reduce my ADL ranking?

1) ADL is a mechanism that will only be activated when there are insufficient insurance funds to fully cover the excess contract losses of a liquidated position.

• Maintaining a substantial Insurance Fund reduces the likelihood of ADL.

• You may view the history, in- and outflows of the Bybit Kazakhstan Insurance Fund here.

 

 

2) You can reduce your exposure to ADL by lowering your leverage or doing a partial closing of your positions in profits.

• Lowering the leverage will lower the ADL ranking in real-time

• A partial closing of a position in profits does not lower the ADL ranking but reduces the number of contracts that are exposed to ADL risk.

• If partial closing does not address your concerns, please consider doing a full closure of your existing positions. Read more here to understand how to do a full position closure on Bybit Kazakhstan. 

 

Traders can refer to the ADL ranking of each position from their position tab.

 

 

 

 

 

 

Inverse and USDC Contracts

This article delves into the Auto-Deleveraging System (ADL) process for Inverse and USDC contracts. In the event of liquidation, when the position cannot be liquidated at a price that is better than the bankruptcy price and there is an insufficient insurance fund to cover the contract loss, Bybit Kazakhstan’s ADL system will automatically deleverage an opposing position from a trader that is selected.

 

 

 

 

Keynotes for ADL process

• Traders with the highest ranking in the system are prioritized and selected to deleverage

• The auto deleveraging ranking is derived in order of highest profit and effective leverage use

• All traders may view their ADL priority on the ADL Ranking tab

• The opposing order of selected trader will be deleveraged at the bankruptcy price of the liquidated order

• Maker fee will be charged to the positions of selected traders and Taker fee will be charged to the liquidated orders

• Traders who experienced ADL will receive an email/phone notification and have all of their active orders closed

• Traders are free to re-enter the market

 

 

Example

A trader buys 5,000 BTCUSD contracts at 7,890.08 USD on 50x leverage, and the liquidation price is 7,773.50 USD.

 

First, let’s calculate the Bankruptcy Price.

Applying the formula for Long position:

For Buy/Long: Bankruptcy Price = Entry Price*Leverage/(Leverage+1)

= (7,890.08 x 50) / (50+1)

= 7,735.372549 USD ≈ 7,735.50 USD

 

 

Assuming that the system is unable to liquidate this position at a price better than 7,735.50 USD (Bankruptcy Price), and that there is an insufficient balance in the Insurance Fund to cover the contract loss, ADL will take over the process.

 

With the assumption that there are 6 short positions on the exchange, the trader with the highest ranking in the system is prioritized and selected to deleverage first. The auto deleveraging ranking is derived in order of highest profit and effective leverage use. The opposing order of selected trader will be deleveraged at the bankruptcy price of the liquidated order.

 

 

 

Looking at the table, we can see that trader A has the highest ADL ranking. Trader A will be selected to fill all the 5,000 contracts at 7,735.50 USD (Bankruptcy Price), and the remaining 500 contracts will stay open, and he will be auto-deleveraged as he will then use the same margin while holding less Contract Value. After this, the ADL ranking of trader A may not be at the top anymore.

 

In another scenario, if there were 10,000 contracts to be deleveraged, then trader A, B, and C will all be selected.

 

Maker fee will be charged to the positions of selected traders and Taker fee will be charged to the liquidated orders. Selected traders will receive an email or phone alert and have all their BTCUSD active orders closed. After which, they are free to re-enter the market.

 

 

All traders may view their ADL priority on the ADL Ranking tab.

 

 

 

 

 

Stages of Insurance Fund Intervention and ADL Trigger Conditions

 

 

T1: Insurance Fund Takes Over a Liquidated Position

• The insurance fund successfully takes over a liquidated position.

• At this point, the insurance fund balance is positive, and the unrealized P&L of the position is negative.

• Even though the combined value (insurance fund balance + unrealized P&L) is negative, ADL is not triggered because the insurance fund still has a positive balance.

 

 

 

T2: Market Recovers Slightly

• The market rebounds, but the position held by the insurance fund still shows a negative UPL.

• Now, the combined value (insurance fund balance + unrealized P&L) has turned positive, and the insurance fund balance remains above zero.

• In this case, ADL is still not triggered because the insurance fund still has a positive balance.

 

 

 

T3: Market Continues to Decline

• As the market drops further, the position held by the insurance fund incurs more losses.

• The insurance fund starts unwinding the position, realizing previously unrealized losses, which in turn reduces its balance.

• When the insurance fund balance drops to zero or below, the system triggers ADL.

• At this point, the position is forcibly closed against users in the ADL queue, using the counterparty’s bankruptcy price for settlement.

 

 

 

T4: Post-ADL Recovery

• After ADL is executed, the insurance fund balance returns to zero or positive.

• The system is now able to resume normal risk management.

 

 

Note: Some trading pairs have their own insurance fund pool.