Global HibtHub Announcement on "Liquidation/ADL Mechanism"
Dear users,
When trading with leverage or borrowing in the trading process, there is a certain level of risk, especially when the market experiences significant fluctuations. To protect user accounts from the impact of extreme market volatility, Global HibtHub has introduced the ADL (Auto Deleveraging) mechanism.
The ADL mechanism aims to safeguard the stability of the trading platform, preventing users from incurring liabilities due to an inability to meet margin requirements. When a user's position reaches a certain risk level, the trading system will automatically trigger the ADL mechanism to reduce the user's position and restore platform stability.
The ADL mechanism works by automatically liquidating a portion or the entire position based on the risk level of the user's position and market volatility. Typically, the liquidated position will be closed at market price to quickly restore market liquidity and stabilize the trading platform.
When users are forcibly liquidated, the remaining position will be taken over by the liquidation system. If the liquidated position cannot be closed in the market, and the mark price reaches the bankruptcy price, the protocol liquidation system will initiate protocol liquidation on investors holding opposing positions. In other words, the protocol liquidation targets investors with opposing positions.
The sequence of protocol liquidation will be determined based on leverage and profit ratio.
The process of protocol liquidation is as follows:
- Liquidation is carried out based on the bankruptcy price of the forcibly liquidated position. When the insurance fund is still insufficient, the protocol liquidation strategy is triggered.
- Counterparties are marked in the ADL sequence based on the profit and loss ranking calculated from the yield and effective leverage. Protocol liquidation is initiated with counterparties marked in the ADL sequence at the bankruptcy price.
- For isolated margin, the liquidation of long and short positions is calculated separately and does not affect each other. For cross margin, the liquidation is calculated based on the net position.
Example: If currently holding a long position of 100 contracts and a short position of 300 contracts, the net position is a short position. ADL is ranked in descending order based on the short position. In other words, the liquidation of a long position will have an impact, while the liquidation of a short position will not.
ADL System Overview:
When investors are forcibly liquidated, their remaining positions will be taken over by Global HibtHub's liquidation system. If the forcibly liquidated position cannot be closed in the market, and when the mark price reaches the bankruptcy price, the ADL system will deleverage investors holding opposing positions. The order of deleveraging will be determined based on leverage and profit ratio.
The process of deleveraging is as follows:
- Liquidation is carried out based on the bankruptcy price of the investor's forcibly liquidated position. When the insurance fund is still insufficient, the automatic deleveraging strategy is triggered.
- Counterparties are marked in the ADL sequence based on the profit and loss ranking calculated from the yield and effective leverage. The most aggressive and profitable investors in the ADL sequence will be marked first.
- The ADL-executed party and counterparties with profit and loss ranking at the forefront will undergo automatic deleveraging at the bankruptcy price.
Ranking of the automatic deleveraging mechanism:
Profit and loss calculation:
Ranking = Profit percentage * Effective leverage (if profitable)
= Profit percentage / Effective leverage (if loss)
Where:
Effective leverage = ABS Mark Price / (Mark Price - Bankruptcy Price)
Profit percentage = (Mark Price - Average Opening Value) / ABS(Average Opening Price)
Mark Price = Position price when at the mark price
Bankruptcy Price = Position price when at the bankruptcy price
Average Opening Price = Position price when at the average opening price
Users can reduce the risk of ADL mechanism triggering by monitoring their margin levels and position risks, as well as setting appropriate stop-loss prices. Additionally, Global HibtHub provides real-time risk management tools to help users better manage their trading risks.
In summary, the ADL mechanism is an important measure adopted by Global HibtHub to protect user fund safety and trading platform stability. By promptly liquidating high-risk positions, the ADL mechanism helps prevent user accounts from incurring liabilities and maintains the stable operation of the entire trading ecosystem.