Deleveraging means reducing borrowed financing or market exposure relative to supporting capital. In derivatives trading, it often involves closing part of a position or strengthening its capital backing. It can be a deliberate risk decision or a forced response to losses and margin requirements.
What actually changes
Suppose a linear position has 10,000 USDT of notional exposure supported by 1,000 USDT of equity. Ignoring costs and price changes, reducing notional to 5,000 USDT while retaining that equity lowers the exposure-to-equity ratio from 10 to 5.
Adding eligible collateral can also lower that ratio, but leaves the position’s market exposure unchanged and places additional capital at risk. Changing a displayed leverage setting alone does not necessarily change position size, repay borrowing or complete either adjustment; the platform’s margin handling matters.
Voluntary and forced reductions
A trader may reduce exposure before an event, after losses or when several positions share the same risk. A lender or trading venue may instead require repayment, additional margin or position reduction under its rules.
Auto-deleveraging is a specific exchange mechanism that can reduce selected opposing positions during stressed liquidation handling. It is one form of forced reduction, not the meaning of every use of “deleveraging.” Selling pressure from many simultaneous reductions can also worsen market liquidity.