Negative Balance refers to a below-zero balance for USDC.
EQONEX introduces the Negative Balance feature in conjunction with Cross Collateral. With Cross Collateral enabled, EQONEX users do not necessarily need any USDC to open a margined position. Trading fees, Basis payments, and P&L, however, are still charged in USDC. Therefore it may be possible for a user to generate a negative USDC balance from time to time.
In particular, two scenarios lead to a negative balance. First, your USDC balance may become negative when you realize a trading loss and the loss is greater than the USDC balance in the account just before the position is closed (or liquidated). Second, the USDC balance may become negative when there is a Basis payment or fee due, and such Basis payments and/or fees are greater than the USDC balance in the account.
How Does The Negative Balance Feature Work
On EQONEX, traders have the option to decide whether they want to run a negative USDC balance by turning on or off the Negative Balance feature. Please note that the Negative Balance can only be turned on while the Cross Collateral is enabled, and Negative Balances will be disabled by default.
If you generate a negative USDC balance with Negative Balances turned OFF, some of your cross collateral assets will be liquidated immediately to bring your USDC balance back to zero or slightly above.
If you generate a negative USDC balance with Negative Balances turned ON, EQONEX will not necessarily liquidate your Cross Collateral assets unless your negative USDC balance exceeds -10,000 USDC or your Total Account Margin falls below zero.
For more information on the liquidation of Cross Collateral assets, see here.
Negative Balance Cap & Fee
Users may run a maximum Negative Balance of -10,000 USDC. EQONEX will charge users that run a negative USDC balance a percentage-based balance management fee every 8 hours at 04:00, 12:00, and 20:00 UTC. For fee rates, please refer to Fee Structure.
The below examples show how the Negative Balance feature works in more detail.
Example 1 - Generating a Negative Balance
Assume Bob has the following balances in one of his accounts:
Scenario 1 - Negative Balance is Off:
Bob decides to close the loss-making positions and realize his trading loss. The realized loss is greater than his USDC balance which would result in a negative USDC balance. Because Negative Balances are disabled, when Bob takes a trading loss, EQONEX will immediately liquidate a part of his collateral assets.
Under such a scenario, the liquidation amount is designed to bring the USDC balance back from negative to zero
Scenario 2 - Negative Balance is On:
Bob decides to close the loss-making positions and realize his trading loss. Bob’s USDC balance will go to -500 USDC (200 - 700). Because Bob has the Negative Balance feature enabled, EQONEX will not liquidate any of Bob’s collateral assets when he realizes the trading loss. However, Bob will be charged the Negative Balance management fee.
Example 2 - Exceeding the Negative Balance cap.
EQONEX allows a maximum negative USDC balance of -10,000 USDC. Assume Claire has enabled the Negative Balance feature and has the following balances in one of her accounts:
Unrealized P&L (In USDC)
Total Unrealized P&L
When Claire closes her positions and realizes the loss, she will have a negative balance of -10,200 USDC in her account. Although Claire has enabled Negative Balance, she now exceeds the cap of -10,000 USDC. Therefore, EQONEX will liquidate some of Claire’s collateral assets to bring back her negative USDC balance below the limit.
In such a case, EQONEX will liquidate more than the excess amount (-200 USDC above the maximum limit) to act as a buffer against constant liquidation. The exact liquidation amount is based on the haircut of the Cross Collateral assets.
Suppose Claire is using BTC as collateral with a 20% haircut. EQONEX will liquidate part of Claire’s BTC to bring her USDC balance back to c. -8,000 USDC (Negative Balance Cap * collateral haircut).
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 EQONEX page.