Understanding Auto-Deleveraging (ADL) and Liquidation
Learn how the Midas liquidation engine works, what triggers liquidation, and how the ADL system protects the platform.
Liquidation is the exchange closing your position because the margin behind it ran out. Auto-deleveraging is the rarer step after that: when the insurance fund cannot absorb a bankrupt position, profitable traders on the opposite side are closed to balance the book. Neither is a punishment; both are mechanics you should understand before leverage is involved.
Before you start
- An understanding of margin modes and leverage, since both determine where liquidation sits.
- The risk disclosure read rather than skimmed.
What Is Liquidation
Liquidation occurs when your position's margin falls below the maintenance margin requirement. This happens when the market moves against your position beyond what your margin can sustain. The liquidation engine automatically closes your position to prevent your account from going into negative equity.
Monitor Your Liquidation Price
Every open position displays its liquidation price. In Isolated Margin mode, this is calculated based on your isolated margin. In Cross Margin mode, it considers your entire futures wallet balance. Keep a comfortable distance between the market price and your liquidation price.
Understand the Insurance Fund
When a position is liquidated, if the closing price is better than the bankruptcy price (the price at which your margin is exactly zero), the surplus goes into the Insurance Fund. This fund is used to cover cases where a liquidation results in a loss beyond the available margin.
What Is Auto-Deleveraging (ADL)
ADL activates when the Insurance Fund cannot cover a liquidation deficit. The system identifies the most profitable opposing traders and reduces their positions to cover the loss. The ADL indicator on the Futures screen shows your queue priority: traders with the highest profit and leverage are deleveraged first.
How to Minimize Liquidation Risk
Use lower leverage, set stop-loss orders, monitor your margin ratio regularly, and avoid over-concentrating in a single position. Adding margin to a losing Isolated position before it hits the liquidation price can also prevent forced closure. The Futures Calculator helps you model different scenarios.
Risk Disclaimer
Futures trading involves significant risk. Leveraged positions can result in losses exceeding your initial investment. Past performance does not guarantee future results. Only trade with funds you can afford to lose. This tutorial is for educational purposes only and does not constitute financial advice.
If something goes wrong
- A position liquidated before reaching the price you expected.
- Liquidation uses the mark price, not the last traded price, which is deliberate — it prevents a thin-book wick from liquidating everyone. Check the mark price on the position detail.
- A profitable position was closed by ADL.
- That happens when the insurance fund cannot cover a counterparty's bankruptcy. The ADL indicator on the position shows how exposed you are to being selected.
Frequently asked questions
- Can I lose more than my margin?
- The liquidation mechanism exists to prevent it, backed by the insurance fund. Extreme, fast markets are exactly when such systems are most stressed.
- How do I reduce liquidation risk?
- Lower leverage, isolated margin, a stop-loss set in advance, and position sizes small enough that one trade is not decisive.
- What is the insurance fund?
- A pool that absorbs bankrupt positions so the other side is paid in full. ADL is what happens when it cannot.