What is the auto-deleveraging (ADL) system on Bybit contracts?

Bybit's Auto-Deleveraging (ADL) system protects market stability by closing highly profitable, leveraged opposing positions when liquidations lack liquidity.

Aug 13, 2025 at 11:36 am

Understanding Auto-Deleveraging (ADL) on Bybit Contracts

The auto-deleveraging (ADL) system is a risk management mechanism implemented by Bybit to ensure the stability and solvency of its perpetual contract market, especially during periods of extreme volatility or insufficient liquidity. When a leveraged trader’s position is liquidated, Bybit attempts to close that position in the market. However, if the market lacks sufficient liquidity to absorb the liquidation at the fair price, the exchange may face a shortfall. To prevent this, Bybit uses the ADL system to gradually reduce opposing positions, starting with those that are most profitable and highly leveraged.

This mechanism is only triggered when the insurance fund is depleted or unable to cover the liquidation loss. The ADL ensures that the system remains balanced by transferring the loss from the liquidated trader to profitable counterparties in a fair and systematic manner. It is not a fee or penalty but a forced position reduction based on predefined rules.

How ADL is Triggered on Bybit

The ADL process activates under specific market conditions:

• When a trader’s margin balance falls below the maintenance margin level, leading to liquidation.
• When the liquidation order cannot be filled at or better than the bankruptcy price due to lack of counterparty liquidity.
• When the insurance fund is insufficient to cover the difference between the liquidation price and the actual fill price.

Once these conditions are met, Bybit’s engine begins searching for profitable opposing positions to deleverage. The selection is not random; it follows a priority ranking based on profitability and leverage level. Positions with the highest profitability ratio (realized PnL / equity) and higher leverage are first in line for partial closure.

ADL Ranking and Priority Mechanism

Bybit uses an ADL ranking indicator visible in the user interface to show where a trader stands in the deleveraging queue. This ranking ranges from 1 to 100, with 1 being the most likely to be affected and 100 being the safest. The ranking is recalculated in real time based on the following factors:

• Profitability of the position: Highly profitable longs are more likely to be deleveraged when a large short is being liquidated.
• Leverage used: Higher leverage increases ADL risk.
• Entry price relative to mark price: Positions with entry prices significantly better than the current market are prioritized for reduction.

Traders can monitor their ADL level in the position panel. A red or yellow indicator signals higher risk, while green indicates safety. It is crucial to understand that even if a position is in profit, it can still be partially closed without prior notice if the ADL system activates.

Step-by-Step ADL Execution Process

When ADL is triggered, the following sequence occurs:

• The system identifies the liquidated position that needs closing.
• It scans all open opposing positions (e.g., longs if a short is being liquidated).
• It sorts these positions by ADL ranking, starting with the highest priority (lowest number).
• It begins closing portions of these positions at the bankruptcy price of the liquidated trader.
• The process continues until the liquidated position is fully absorbed or sufficient liquidity is restored.

For example, if a large short position is liquidated at a bankruptcy price of $30,000, Bybit will start closing profitable long positions at $30,000, even if the current market price is higher. This protects the system from losses but may result in unexpected position reductions for traders with high ADL risk.

Each deleveraging event is logged in the user’s transaction history, showing the amount closed, price, and reason. Traders retain the remaining portion of their position unless fully deleveraged.

How to Reduce ADL Risk on Bybit

To minimize exposure to auto-deleveraging, traders can take several proactive steps:

• Lower leverage usage: Opt for 5x or 10x instead of maximum leverage to reduce ADL ranking.
• Monitor ADL indicator: Keep an eye on the ranking in the trading interface; aim to stay above level 80.
• Adjust entry price: Avoid entering positions too far from the current market price to reduce profitability skew.
• Use stop-loss orders: Close positions before they become excessively profitable and attract ADL risk.
• Diversify across contracts: Spread positions across different pairs or maturities to reduce concentration.

Traders should also avoid holding positions during high-volatility events such as major news releases or Bitcoin halvings, as these increase the likelihood of cascading liquidations and ADL activation.

Impact of ADL on Trading Strategy

The presence of ADL influences how traders structure their risk management. A strategy that relies on holding highly leveraged, deeply profitable positions may face sudden reductions without warning. Therefore, incorporating ADL awareness into position sizing is essential. Traders using grid bots or scalping strategies should configure their systems to exit before reaching top-tier profitability.

Additionally, funding rate considerations can indirectly affect ADL risk. In environments with high positive funding, long positions dominate, increasing the pool of potential targets if shorts are liquidated. Conversely, negative funding may expose shorts during long liquidation waves.

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Frequently Asked Questions

What does it mean when my position is marked with an ADL warning?

An ADL warning indicates that your position is in the top tier of the deleveraging queue. If the system activates, your position may be partially or fully closed at the liquidated trader’s bankruptcy price. This typically happens when your profitability ratio is high and your leverage is elevated relative to the market.

Can I avoid ADL completely?

While you cannot eliminate ADL risk entirely, you can significantly reduce it. Maintaining a low leverage ratio, keeping your ADL ranking above 90, and closing positions before they become excessively profitable are effective strategies. Using cross margin mode with adequate equity also helps lower your ranking.

Is ADL the same as forced liquidation?

No. Forced liquidation occurs when your margin is insufficient to maintain your position, and Bybit closes it to prevent further losses. ADL, on the other hand, affects profitable traders whose positions are used to absorb losses from others’ liquidations. You do not lose your entire margin in ADL—only a portion of your position is closed.

Where can I see my current ADL level on Bybit?

In the Bybit trading interface, navigate to the Positions tab. Next to each open contract, you will see an ADL indicator—usually a number between 1 and 100 displayed in color. Green means low risk, yellow indicates moderate risk, and red means high risk of being deleveraged.