Definition ∞ Auto-deleveraging represents a risk management protocol on some cryptocurrency derivatives exchanges that liquidates counterparty positions. This process automatically reduces the leverage of profitable traders to cover losses incurred by liquidated positions that could not be fully closed by the exchange’s insurance fund. It serves as a last-resort mechanism to prevent further market instability during periods of extreme volatility. The system prioritizes users based on profit and leverage, impacting their open positions.
Context ∞ Auto-deleveraging remains a significant point of consideration for traders on platforms offering high-leverage crypto derivatives. Its implementation frequently leads to discussions regarding market fairness and the potential for unexpected position closures, particularly during rapid price movements. Understanding this mechanism is essential for assessing the full risk profile of leveraged trading in digital assets.
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