The mechanism of "negative burn - positive burn"
Auto-deleveraging (ADL): Automatic deleveraging mechanism

Auto-deleveraging (ADL): Automatic deleveraging mechanism in financial trading Introduction In the modern financial trading world, especially on cryptocurrency and derivative exchanges, Auto-deleveraging (ADL) has become an important mechanism to maintain system stability. This article will explain in detail about ADL, how it works, and its impact on traders. What is auto-deleveraging? Auto-deleveraging, also known as automatic deleveraging, is a mechanism designed to handle situations where a user's account does not have enough funds to maintain their trading position. Instead of using the exchange's insurance fund, the system will automatically close a portion or all of the profitable positions of other traders to offset the losing positions. The operating principle of ADL

1. Queueing system for clearance When a trader is unable to maintain the minimum margin requirement, their position will be put into the liquidation queue. Instead of liquidating at the usual market price, the ADL system will be triggered.
2. Offset mechanism between traders Consider a typical scenario as mentioned in the conversation: if one trader is making a profit of 200 currency units and another trader is losing 200 units, the ADL system will automatically close the position of the profitable trader to offset the losing trader.
3. Mechanism of "negative burning - positive burning"

• Burn position: This is a term referring to the position of losing traders being liquidated.
• Burning long: At the same time, the profit position of others is also partially or entirely closed to offset. This creates a balanced system in which risk is distributed among traders rather than focused on the exchange.

4. The role of the exchange The exchange acts as an intermediary in this process and charges fees on liquidation transactions. As mentioned: "The exchange eats the order fee, it does not let you profit more. It makes up for the loss." Why do exchanges implement ADL?
5. Protect the financial integrity of the exchange ADL helps the exchange not to use its insurance fund or capital to offset losing positions, ensuring long-term financial stability.
6. Maintain market liquidity By distributing risk among traders, ADL helps the market continue to operate smoothly even in times of significant volatility.
7. Minimize sudden price fluctuations Instead of liquidating all losing positions at once, which can cause a domino effect and significant price fluctuations, ADL helps the liquidation process to be more controlled. Impact of ADL on traders
8. For profitable traders Those with a position in profit may be surprised to see their position partially or fully closed due to the ADL mechanism. This can lead to dissatisfaction as they are unable to maximize profit potential.
9. For traders who incur losses Traders who lose will see their positions liquidated, but instead of being liquidated at the normal market price, they benefit from ADL's offset mechanism. ADL coping strategy
10. Maintain a safe reserve ratio To avoid becoming the subject of ADL, traders should maintain a margin ratio higher than the minimum required level.
11. Understand the priority order of ADL Exchanges often have a ranking algorithm for ADL, typically based on leverage ratio and profit. Understanding how this algorithm works can help traders minimize the risk of being ADL.
12. Diversify the exchange Not all exchanges use the same ADL mechanism. Diversifying trades across multiple exchanges can help minimize the overall impact of ADL. Auto-deleveraging is an important mechanism in the modern financial trading ecosystem, especially in the cryptocurrency and derivatives markets. Although it may cause some disadvantages for profitable traders, it plays a vital role in maintaining market stability and liquidity. Understanding ADL and how it operates is essential for anyone engaging in leveraged trading on modern exchanges. By applying appropriate strategies and maintaining a safe margin ratio, traders can minimize the negative impact of ADL on their trading strategies.