Auto-deleveraging is an exchange's last-resort mechanism for balancing a derivatives book. If liquidated positions create losses too large for the insurance fund, the exchange closes the most exposed profitable counterparties at bankruptcy price and settles the difference itself. The trader on the winning side gets taken out of a position they did not ask to leave.
01The ranking
ADL selects counterparties by a ranking that combines profit and leverage: effective profit percentage times effective leverage. A highly leveraged counterparty with large profits ranks first. Exchanges show your position in the queue as an indicator, and when the mechanism fires, affected traders receive notifications and can re-enter the market afterwards.
02How often it happens
On major exchanges ADL is rare, because their insurance funds are deep and cascade losses are usually absorbed quietly. It appears more often on smaller venues, on illiquid contracts, and during historical extremes like the March 2020 crash. When it does fire, prices on that venue diverge from the market for a moment, which shows up in recorded data as anomalous fills, with no liquidation event attached.