EQUOS has unique features and functionality explicitly dedicated to managing liquidation orders. By using three lines of defense we aim to minimize the likelihood of Auto-DeLeveraging (ADL). Although EQUOS aims to minimize the chances of such an event, it should be noted that the risk of ADL can never be completely removed. EQUOS aims to prevent the possibility of ADL using the following 3 functions:
- Liquidation Platform - a dedicated liquidity pool exclusively used for liquidation. Exclusive participants will be invited to join the Liquidation Platform in order to add greater depth, provide price competition, and to ensure that liquidation orders are executed at the market price for the account holder;
- EQUOS order book - if there is no liquidity available at the Zero Price or better on the Liquidation Platform then orders will be sent to the main EQUOS order book;
- Liquidation Reserve - if there is not enough liquidity on the EQUOS order book then the Liquidation Reserve will take the position at the Zero Price.
It should be noted that the Liquidation Platform is only accessible to participants invited to join that process.
Any order that is executed due to a Margin Liquidation Trigger is charged a liquidation fee of 0.375% on the order size executed at the price at which the liquidation order was (partially) filled. This liquidation fee will be paid to the Liquidation Reserve. No trading fees will be charged to the account for this transaction.
EQUOS will also contribute revenue from all derivatives trading until the size of the Liquidation Reserve is sufficient to mitigate the risk on the platform.
The Zero Price is the point where the Total Account Margin would be fully depleted. It is adjusted for the liquidation fee to ensure sufficient funds remain in the account to pay this fee upon liquidation.
EQUOS continuously values a trader’s positions and calculates their Initial Margin requirement based on filled and open orders. A trader can only continue to send orders as long as their Total Account Margin remains larger than the Initial Margin requirement. As soon as the Total Account Margin drops below the amount of Initial Margin required, no new orders can be added unless they reduce the existing exposure. A more detailed description of margin concepts and margin requirements for positions on EQUOS can be found in Leverage & Margin.
An account will start to be liquidated when the Total Account Margin reaches the Margin Liquidation Trigger. The Margin Liquidation Trigger is based on positions only and does not include open orders. At this point, all open orders for the account are canceled, including any open spot orders, as they impact the Total Account Margin. If the Total Account Margin is still below the Margin Liquidation Trigger, the account’s leveraged positions will start to get liquidated.
Step 1: Liquidation platform
When an account needs to get liquidated, the risk engine first sends an order to our Liquidation Platform with a limit price based on the Zero Price.
The Liquidation Platform prices can only be used to fill liquidation orders, never regular market orders. If the order can be filled in full the account is liquidated at this price and the liquidation is now complete. If the order is completed above the Zero Price then any excess funds, after fees are charged, are retained by the account holder. If the order was not fully filled, the liquidation moves to step 2.
Step 2: Our own order book
If the order could not be filled in full in the previous step, the remaining order size is sent to the main order book with the same Zero Price limit. If the remaining order size can be absorbed here then the liquidation is complete. If the order is completed above the Zero Price then any excess funds, after fees are charged, are retained by the account holder.
Step 3: Liquidation Reserve
If there is still an outstanding balance after step 2 or if the portfolio was already in negative equity before step 1 then this position is transferred to the Liquidation Reserve at the Zero Price. The latter could occur should the market instantaneously move beyond the Zero price for an account. For example, if an account was long 1 perpetual future at 10,000 with Initial Margin and Total Account Margin of USDC 80 (125x leverage) then, assuming no liquidation fee for simplicity for the sake of this example, the Zero Price is 9,920. If the market were to drop suddenly to 9,900 then the account would have a balance of -20 USDC. Hence, the position would be assigned to the Liquidation Reserve at 9,920 and the account balance would move to zero for the client.
Any losses beyond the Zero Price, in other words, any negative margin balances like the -20 USDC in the example above, will be absorbed by the Liquidation Reserve. This step is conditional on the capital base at the Liquidation Reserve being sufficient to be able to manage the risk of the positions.
Step 4: Auto Deleveraging
EQUOS will only enter ADL if the Liquidation Reserve is depleted to the point that no further risk can be absorbed into the fund. More information on the ADL process on EQUOS can be found in Auto-Deleraging.
Overview of the Liquidation Process
For further assistance or more information, please contact our Customer Support team via email@example.com or click on the chat widget at the bottom right-hand side of the EQUOS page.