On crypto derivatives, a position can be profitable and still get reduced or closed by the exchange. This is ADL (Auto-Deleveraging)—a last-resort risk mechanism used during liquidation cascades. Binance describes ADL as the final step in the liquidation process, triggered only when the futures insurance fund cannot accept a bankrupt position.

Below is the operational view: what the insurance fund does, what ADL is, why it triggers, and how to reduce ADL exposure.

The Insurance Fund: What It Covers

With leveraged futures, a liquidation can be executed worse than the bankruptcy price, creating a deficit (negative equity relative to the trader’s margin).

The insurance fund is designed to absorb that gap:

• if liquidation closes better than bankruptcy price, leftover margin is added to the fund;
• if liquidation closes worse, the fund covers the deficit.

The purpose is solvency: keeping the system stable when the market is moving fast and liquidity is thin.

What ADL Is and When It Triggers

ADL is used when the insurance fund cannot absorb the full bankrupt flow. The exchange then closes bankrupt exposure by automatically deleveraging positions on the opposite side.

How major venues describe it:

• Binance: ADL occurs only if the insurance fund cannot accept a bankrupt position.
• Bybit: in extreme liquidation events, ADL deleverages profitable or highly leveraged opposing positions based on ADL ranking.
• OKX: ADL is the final liquidation process used to protect security funds when the fund cannot take over more bankrupted positions.

Key point: ADL is not about your stop order. It is a system-level risk mechanism.

How the Exchange Selects Positions for Deleveraging

The selection logic is consistent: priority tends to favor opposing positions that are:

• highly profitable, and/or
• effectively highly leveraged.

Bybit explicitly notes ADL targets profitable or highly leveraged opposing positions based on the ADL ranking.

Binance states ADL follows liquidation priority and provides an ADL risk indicator in the UI.

What Happens If You Get Hit by ADL

Common outcomes:

• your position is reduced partially or closed fully (depending on the bankrupt flow and your queue priority);
• you receive a notification, and active orders may be canceled—described in Bybit’s ADL mechanism.

It feels like an early exit, but the intent is reducing systemic risk under stress.

Why ADL Risk Can Be Higher on Certain Products

Market regime matters (volatility, thin books, liquidation cascades), and product structure matters.

Binance notes coin-margined contracts may be more exposed to ADL because multiple contracts using the same collateral share one insurance fund, resulting in smaller funds.

How to Reduce ADL Exposure

No shortcuts—just exposure management:

Lower leverage

Lower leverage generally lowers your priority and reduces exposure. Bybit frames ADL around profitable/high-leverage opposing positions.

Reduce size when a position becomes “heavy”

If a position becomes large and highly profitable, trimming reduces the amount that can be deleveraged.

Avoid carrying maximum risk into cascade regimes

During liquidation waves, smaller size and a larger margin buffer reduce dependence on stressed execution.

FAQ

Is ADL the same as liquidation?

No. Liquidation is your margin event; ADL is a last-resort deleveraging process when insurance funds can’t absorb bankrupt flow.

Why can a profitable position be reduced?

Because ADL targets opposing positions that are profitable and/or highly leveraged to offset bankrupt positions.

How do I monitor ADL risk?

Check the ADL indicator/lights and ranking in the position UI, as documented by major venues.

Can ADL be avoided with certainty?

No. Binance describes ADL as a last-resort step that can trigger under stress when the insurance fund cannot take over a bankrupt position.

What should I do after an ADL event?

Confirm the reduction, review canceled orders, and rebuild exposure with lower leverage and smaller size. Don’t re-load the same risk into the same regime.

Conclusion

The insurance fund absorbs deficits created when liquidations execute worse than the bankruptcy price. ADL is triggered only when that fund cannot absorb the full bankrupt flow, and the exchange reduces opposing positions based on priority. It’s disruptive, but the logic is consistent: the higher the leverage and the larger the unrealized profit on a position, the higher the chance it sits near the top of the ADL queue. The most reliable way to reduce ADL exposure is the traditional one—use moderate leverage and avoid carrying maximum risk into regimes where the market turns into a liquidation cascade.