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’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 rebate will be paid to the selected positions 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
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:
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.
|Traders with existing short positions||The quantity of selling contracts||Ranking = P&L Percentage x Effective Leverage||Percentile|
|Trader A||5500||6||20% (5 lights)|
|Trader B||2500||5||40% (4 lights)|
|Trader C||2000||4||60% (3 lights)|
|Trader D||3000||3||60% (3 lights)|
|Trader E||2000||2||80% (2 lights)|
|Trader F||5000||1||100% (1 light)|
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 rebate will be paid to selected traders while Taker fee will be charged to the liquidated position. 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.
***For USDT contracts***
Under isolated margin, the individual position has the risk of being ADL;
Under cross margin, fully hedged positions will not be chosen for ADL. When the positions are not fully hedged, only the excess contracts that are not fully hedged may be subjected to ADL, and the positions that are hedged will not be affected.