Auto-deleverage (ADL) is the algorithm that searches for counterparties to forcibly close the position of the liquidation engine. ADL can only happen if the Insurance Fund is depleted which is highly unlikely.
ADL event starts with the ranking of clients’ portfolios to define counterparties for closing the position of the liquidation engine.
The clients are ranked using the following criteria:
- Open positions that are opposite to the one that has to be closed
- Higher unrealized % PNL for a position in a given instrument
- Higher leverage level
The liquidated position will be closed using the positions of ranked clients starting from the clients with the highest-ranking until the position that has to be closed by the ADL engine is not closed in full. The ADL price is the same for all clients.
In the case of deleveraging, you will receive a notification.
Auto-Deleverage Ranking Calculation
Below is the formula used by ZUBR to calculate rank per each instrument the client has opened position in.
Let's define the following RIsk Coefficient (Effective Leverage) to use in the ADL rank calculation as:
Where NV is the sum of all Notional Values of the client’s positions and orders. Then the rank for auto-deleveraging is:
Auto-Deleverage Ranking Example
Below is the example of how ADL order is calculated assuming there are 10 clients holding positions opposite to the one that has to be closed.
|
%PNL |
Leverage |
ADL Rank |
ADL Order |
|
|
Client 1 |
10,0% |
4 |
0,4 |
5 |
|
Client 2 |
5,0% |
0,5 |
0,025 |
10 |
|
Client 3 |
20,0% |
1,2 |
0,24 |
7 |
|
Client 4 |
5,0% |
10 |
0,5 |
3 |
|
Client 5 |
15,0% |
2 |
0,3 |
6 |
|
Client 6 |
3,0% |
4 |
0,12 |
8 |
|
Client 7 |
12,0% |
5 |
0,6 |
2 |
|
Client 8 |
6,0% |
0,8 |
0,048 |
9 |
|
Client 9 |
11,0% |
11 |
1,21 |
1 |
|
Client 10 |
7,0% |
6 |
0,42 |
4 |
In the case of auto-deleveraging, Client 9 will be deleveraged first.
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