Binance may force-reduce profitable hedges despite sufficient reserves

Binance’s auto-deleveraging (ADL) system could force-reduce profitable Bitcoin hedge positions even with adequate insurance funds and reserves. ADL rules allow profitable positions on the opposing side to be selected for deleveraging if the insurance fund reaches its limit for absorbing bankrupt positions or if unrealized losses on absorbed positions exceed available balances. ADL priority is based on a position’s profit rate and leverage. While meeting Binance’s delta-neutral account requirements can lower ADL priority within the same profit-and-loss tier, it does not fully exempt positions from deleveraging. The recent reallocation of the futures insurance fund does not indicate that reserves for any individual contract are insufficient or that the likelihood of ADL has increased. ADL is not exclusive to Binance; other major exchanges like OKX and Bybit have similar risk management systems that can also force-reduce profitable positions when insurance funds cannot absorb losses from bankrupt positions.

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