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Quantitative Finance · Glossary

What is Auto-deleveraging, socialised loss?

Also known as: auto-deleveraging · socialised loss

Definition 18.6 Markets III: Commodities, Energy and Crypto · Chapter 18 — Margin, Liquidation and Loss Allocation

Auto-deleveraging is the closing of profitable opposite positions of other traders, at the bankrupt position’s bankruptcy price or at the mark, when the insurance fund cannot absorb a liquidation’s loss, with those traders selected by a published ranking. A socialised loss is a loss spread across a group of traders, for example all profitable accounts pro rata to their gains, rather than imposed on those selected by a ranking.

The default waterfall of a crypto derivatives venue. There are no clearing members and no default fund contributed by them, as in One Quant Book 1, chapter 5: after the loser’s margin and the venue’s insurance fund, the losses fall on the winners. Schematic.
Figure 18.2. The default waterfall of a crypto derivatives venue. There are no clearing members and no default fund contributed by them, as in One Quant Book 1, chapter 5: after the loser’s margin and the venue’s insurance fund, the losses fall on the winners. Schematic.
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