Background on ADL: Auto-deleveraging is the last-resort mechanism when market and backstop liquidations fail. Each ADL has a triggered (undercollateralized) side and a providing side chosen by profitability and leverage. Providers tend to be profitable on average, but specific ADL trades can be unfavorable. The system minimizes ADLs because they are unpredictable; ADL is rare for cross-margin assets backed by a non-toxic backstop like HLP.
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