Auto-Deleveraging (ADL)
When an investor is forced to close a position, their surplus will be taken over by MEME's Forced Close Out system. If a forced liquidation position is not able to close in the market and when the marker price reaches the breakeven price, the automatic position reduction system will reduce the positions of investors holding positions in the opposite direction. The order of position reduction will be determined by the leverage and profitability ratio. The Auto-Deleveraging will be based on the breakeven price of the forced position.
Suppose a large trader has a long position worth 100 times the leverage and one day, due to a significant drop in the market price, the trader's position is forcibly liquidated, resulting in a large loss on the closeout. A closeout loss is when a position loses more than the margin used on the position after a forced liquidation is executed. In order to cover a shortfall, most trading platforms use a shared loss mechanism, where the total loss of the contract is distributed proportionally to all traders who took profits.
Auto Deleveraging means that when a trader is forced to close a position, if the position cannot be closed at a price better than the closeout price and the balance of the insurance fund is not sufficient to cover the loss of the position, the Auto Deleveraging system will reduce the position of the trader holding the position in the opposite direction to ensure that the forced liquidation order can be executed in time so to avoid further losses.
Unlike other trading platforms, MEME uses an ADL system that automatically selects traders holding positions in the opposite direction to reduce their positions based on the percentage of profit and loss of the position and the effective leverage used. This means that the smaller the percentage of profit a trader holds and the less leverage he uses, the smaller the chance of having his position automatically reduced.
Last modified 9mo ago