What is ADL on KuCoin Futures?

Understanding ADL on KuCoin Futures

ADL stands for Auto-Deleveraging, a risk management mechanism used on KuCoin Futures when a leveraged position is forcibly closed due to insufficient margin, and there are no available liquidation orders in the market to absorb the loss. Unlike traditional liquidation handled by the insurance fund, ADL steps in when the system cannot fully cover the loss from the insurance fund or when the market is too volatile for orderly liquidation. This process ensures the solvency of profitable traders by automatically reducing the leverage of opposing positions—those with high profit and low risk of liquidation—to absorb the loss from the bankrupt position.

In essence, ADL prevents systemic risk by transferring the loss from a bankrupt trader to selected profitable traders. It is not a random process—KuCoin uses a priority ranking system based on the profit ratio and leverage level of opposing positions. Traders with the highest profit ratios and lowest bankruptcy risk are most likely to be selected first.

How ADL Works on KuCoin Futures

When a trader’s position is liquidated and the insurance fund cannot cover the full loss, the system initiates ADL. Here’s how it unfolds:

• The system identifies all profitable opposing positions (e.g., if a long position is liquidated, short positions are considered).
• Each profitable position is assigned an ADL ranking, visible in the Futures account under the 'ADL Ranking' tab.
• Positions with the highest profit ratio and lowest risk (i.e., low leverage, high maintenance margin) are prioritized for deleveraging.
• If your position is selected, it will be partially or fully closed at the bankruptcy price of the liquidated position—not the mark price or current market price.

This mechanism ensures that losses from failed positions are absorbed by traders who are statistically the safest to handle such a reduction without themselves being liquidated.

How to Check Your ADL Ranking on KuCoin

Monitoring your ADL ranking helps you assess your risk of being involuntarily deleveraged. To check it:

• Log in to your KuCoin Futures account.
• Navigate to the 'Positions' tab.
• Look for the 'ADL Ranking' column next to each open position.
• The ranking ranges from 0 to 4, where 0 means lowest risk and 4 means highest risk of being selected for ADL.

If your ranking is 4, your position is among the first to be considered for ADL in case of a system-wide deleveraging event. You can reduce your ranking by lowering your leverage or closing highly profitable positions. This is especially important during periods of high market volatility or when holding large positions.

Step-by-Step: How to Reduce ADL Risk on KuCoin

To minimize the chance of being affected by ADL, follow these steps:

• Reduce your leverage: Lowering leverage decreases your profit ratio relative to margin, which improves your ADL ranking.
• Close highly profitable positions: If a position has a large unrealized profit, it increases your ADL risk. Consider taking partial profits.
• Avoid holding positions during high volatility: ADL events are more likely during sharp price movements—monitor BTC or ETH volatility as indicators.
• Use stop-loss orders: These help manage risk proactively and avoid being caught in a cascading liquidation scenario.
• Check your ADL ranking daily: Make it part of your trading routine to review this metric, especially if you hold leveraged positions overnight.

Each of these actions directly influences your ADL ranking and reduces the likelihood of involuntary position closure.

Difference Between ADL and Forced Liquidation

It’s crucial to distinguish between these two mechanisms:

• Forced Liquidation occurs when your margin falls below the maintenance requirement. The system closes your position automatically to prevent further losses. This uses the insurance fund if needed.
• ADL occurs when another trader’s position is liquidated, and the system needs to recover losses that the insurance fund cannot fully absorb. In this case, your profitable position may be closed to cover that loss—even if your own position is healthy.

The key difference is: forced liquidation affects only your own position due to your risk management failure, while ADL affects your position due to the failure of another trader’s position and the system’s need to balance losses.

FAQs About ADL on KuCoin Futures

Q: Can I be notified before ADL happens to my position?No, KuCoin does not provide advance notifications for ADL. It is a real-time risk mitigation process. You must monitor your ADL ranking manually to stay informed.

Q: Does ADL happen only during bear markets?No, ADL can occur in both bull and bear markets. It depends on the number of liquidations and the state of the insurance fund—not market direction alone.

Q: If my position is closed via ADL, do I lose money?You do not lose money directly—you are closed at the bankruptcy price of the liquidated position, which may be worse than the current market price. However, since your position was profitable, the closure reduces your unrealized gains rather than causing a loss.

Q: Is ADL unique to KuCoin Futures?No, ADL is used by several major futures exchanges like Binance Futures and Bybit. Each exchange has its own ranking system and rules, but the core mechanism remains similar.