Exchanges

Auto-deleveraging (ADL) is an exchange mechanism that forcibly closes profitable leveraged positions to cover losses from underwater accounts and maintain platform solvency during extreme volatility. When liquidations cascade faster than the exchange can process, ADL systems automatically close winning traders' positions, taking their profits, to ensure the exchange doesn't become insolvent. This typically affects 0.5-2% of highly profitable positions during crashes, meaning your hedge or winning short can disappear exactly when you need it most.

A CEX (Centralized Exchange) is a cryptocurrency trading platform operated by a company that acts as an intermediary between buyers and sellers. These exchanges custody user funds, maintain order books, provide liquidity, and offer features like fiat on-ramps, customer support, and regulatory compliance. While CEXs offer convenience and high liquidity, they require users to trust the platform with their assets and personal information.

A DEX (Decentralized Exchange) is a cryptocurrency trading platform that operates through smart contracts without a central authority. Users trade directly from their wallets by interacting with liquidity pools, maintaining full custody of their assets until the moment of trade. DEXs offer greater privacy and control but typically have lower liquidity, higher transaction fees during network congestion, and require more technical knowledge than centralized exchanges.

Exchange reserves are the total amount of cryptocurrency held on centralized exchange platforms rather than in self-custody wallets. High exchange reserves suggest potential selling pressure as traders keep crypto on exchanges to sell quickly, while declining reserves indicate accumulation as holders move coins to cold storage for long-term holding. Monitoring exchange reserves helps identify whether market participants are preparing to sell (bearish) or accumulate for the long term (bullish).