Margin and Liquidations

QFEX is disrupting the traditional way that futures are cleared to bring capital efficiency and leverage never seen before to traditional markets. Traditional, intermediated markets hide the risk of leverage amongst their brokers, and try to regulate away tail cases with high capital requirements, leading to poor UX. We have created innovative, fair and transparent multi-stage de-risking procedure that prioritizes the safety of a user’s wallet balance in the event of a margin call. Users can also set their leverage level to be lower than the maximum to improve their safety.

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Margin Call and Close-Out Procedure

The process runs once per second:

• All users are evaluated simultaneously and on equal terms.
• Progression through the Procedure halts for any user whose equity recovers mid-process.

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Initial Steps

Condition: Account Equity < Maintenance Margin

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Closing of Open Orders

All open orders are immediately canceled.

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Netting of Liquidated Positions

• Opposite liquidated positions are netted internally between accounts.
• Trades are booked at current Mark Price.

Example:

Account 1: Long 100 units of Symbol Y
Account 2: Short 100 units of Symbol Y
→ Positions netted, no order book impact.

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Next Steps

Orderbook Liquidations

Condition: CoM < Account Equity < Maintenance Margin

• Compute notional amount to liquidate.
• Cap notional amount to ensure that the overall amount of liquidation quantity submitted to the orderbook does not cause the 60-second EMA of this quantity to exceed the Orderbook Liquidation Limits.
• Enter limit IOC orders at Mark Price ± Liquidation Spread.

Off-Orderbook Liquidation

Condition: Account Equity ≤ CoM

• Positive Account Equity drained into the Reserve Fund.
• Negative equity covered from the Reserve Fund (if sufficient).
• Positions transferred to DLP participant at Mark Price, up to the maximum quantity such that the DLP Fee can be covered by the Reserve Fund.
• Reserve Fund covers DLP Fees (which are 0 if the trade was risk-decreasing for the DLP).

Auto-Deleveraging

Condition: Account Equity ≤ CoM and Off-Orderbook Liquidation incomplete. Procedure:

• Rank accounts with the opposite-side position on the required symbol by (Account Equity / Position Maintenance Margin).
• Net off positions against the opposite side accounts, in rank order, ensuring that the liquidated account is flattened with 0 Account Equity.

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Margin Call Notifications

Clients receive alerts (email + browser) when margin falls below:

• 75% of Initial Margin (warning)
• 66.6% of Initial Margin (close out notification)

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Designated Liquidity Provider (DLP) Program

An opt-in program for qualified market makers to absorb liquidated positions efficiently when the orderbook cannot. Allocation is pro-rata to DLPs by available margin capacity.

• DLP positions must remain within position limits.
• DLPs receive a DLP Fee for each liquidation absorbed.
• DLP operations follow strict risk control and monitoring standards.

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Orderbook Liquidation Limits

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Reserve Fund and Stress Testing

Regular stress testing of the Liquidation Protocol ensures that the system can handle extreme market conditions while maintaining adequate Reserve Fund levels. The exchange monitors liquidation frequency and effectiveness to optimize protocol parameters and ensure continued system resilience.