My winning position was closed

If a profitable position was closed without you closing it and without being liquidated, it was almost certainly auto-deleveraging — ADL. This is the least intuitive mechanism on any perpetual exchange, so it is worth understanding why it exists rather than only that it happened.

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Why it exists

Every position has a counterparty. When a trader is liquidated and the market moves so fast that closing their position costs more than the margin backing it, the loss does not disappear — somebody absorbs it. The order of absorption: First the book. The position is closed against resting liquidity, bounded by the bankruptcy price. Then the insurance fund, which is funded by liquidation penalties precisely for this. Then ADL, only if the insurance fund cannot cover it. Profitable traders on the opposite side are closed at the bankruptcy price to balance the books. The alternative is socialized loss — every account on the venue taking a haircut — or the venue running an uncollateralized deficit. ADL concentrates the cost on the positions that gained from the same move, rather than spreading it across people who were not involved.

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Why you were selected

ADL works through a ranked queue. You are ranked by: $$\text{ADL score} = \text{unrealized P\&L \%} \times \text{effective leverage}$$ Both terms are evaluated at the bankruptcy price. The highest scores are deleveraged first. Read that formula as: the most profitable, most leveraged positions go first. Being deleveraged is a signal that you were on the right side of a violent move with a lot of leverage — which is exactly the position that gained from the shortfall being created. Reducing leverage lowers your score and moves you down the queue. It is the only lever you control.

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What it means for your money

You keep the profit up to the bankruptcy price. ADL is not a penalty and carries no fee. You are closed at a defined price, not an arbitrary one. You lose the position, not the gains. What you give up is the profit you would have made had it stayed open. You can re-open. Nothing prevents you taking the position again — at the current price, with the current book.

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How to tell it was ADL

Order History shows the closure with its reason, distinct from an ordinary fill or a liquidation. Trade History shows the execution price, which should be the bankruptcy price of the account being closed against you. If a position closed and you cannot find a matching order of your own, check there before assuming it was an error.

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Reducing your exposure to it

Use less leverage. It lowers your ADL score directly, and it is the whole of what you control. Take profit in pieces. A partially closed position realizes gains that ADL cannot take back. Watch it in volatile markets. ADL becomes likely exactly when a market has moved far and fast — the same conditions that made your position profitable.

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