If the insurance fund can’t cover the extra cost when the positions are closed at a worse price than the bankruptcy price, ADL will be triggered and counterparty’ positions will get deleveraged by profit and leverage priority.
ADL indicator represents the priority in the queue in 20% increments. When all light bars are on, your position is in the top percentile.
Traders could always check their ADL priority and may reduce the leverage or close partial profited position to lower the risk of being deleverage.
The ADL priority is determined by profit and effective leverage. The system splits these positions by longs and shorts and ranks the positions from highest to lowest.
If P&L percentage > 0, Ranking = P&L Percentage * Effective Leverage
If P&L percentage < 0, Ranking = P&L Percentage / Effective Leverage
P&L percentage = (Mark Value - Avg. Entry Value) / abs(Avg. Entry Value)
Effective Leverage = abs(Mark Value) / (Mark Value - Bankrupt Value)
Mark Value = Position Value at Mark Price
Bankrupt Value = Position Value at Bankruptcy Price
Avg. Entry Value = Position Value at Average Entry Price
Once you are de-leveraged, a notification will be sent to you and the open orders will be canceled, and you are free to reopen the position.