Auto-Deleveraging (ADL) Explained: Why a Winning Trade Gets Closed
Updated · 2 min read
Auto-deleveraging (ADL) is a last-resort mechanism that closes profitable traders' positions to cover a liquidated account that has gone negative. When liquidations can't be filled on the order book or absorbed by the insurance fund or backstop liquidator, the venue picks traders on the opposite side, ranked by profit and leverage, and closes them at the previous mark price.
- ADL only happens when an account's value goes negative, after book liquidation and backstops fail.
- Hyperliquid ranks by (mark / entry) × (notional / account value): the most profitable, most leveraged go first.
- You're closed at a fair price, but you lose the position and any further upside.
- ADL guarantees the venue has no bad debt; traders with no open positions never share losses.
How the ADL queue works
ADL rank = (mark_price / entry_price) × (notional_position / account_value)
Hyperliquid's sorting index. Higher = closed first.
The formula targets traders who are both deep in profit and highly leveraged. Lower leverage or taking profits moves you down the queue.
When it happens
ADL shows up in violent moves on thin markets: a small-cap perp gaps, liquidations can't find bids, and the backstop can't absorb them. On Hyperliquid's builder-deployed (HIP-3) markets, each DEX has its own on-chain backstop liquidator that falls back to ADL. Cross-margin eligibility is restricted to reduce how often that happens.
Frequently asked questions
Is ADL the same as liquidation?
No. Liquidation closes a losing position. ADL closes a winning position to pay for someone else's shortfall.
Do I pay a fee when auto-deleveraged?
Venue rules vary. On Hyperliquid you're closed at the previous mark price against the underwater account.
Sources
Educational content, not financial advice. Perps and prop evaluations are high-risk; firm rules change, so check each firm's current terms.