Margin System

The HPDX Futures margin system ensures all positions are properly collateralized, protecting both parties from counterparty default risk.

Contract 3.0.0. Positions are unilateral aggregates per (user, expirationAt). Portfolio IM/MM is computed by the Portfolio Margin Engine (PME). There is no deliveryDurationDays multiplier — each whole contract settles one unit of price.

Overview

Margin is collateral deposited into the Collateral Vault used by Futures. The system continuously monitors margin levels and automatically liquidates undercollateralized accounts.

flowchart TB
  B[Vault balance]
  B --> E[Excess margin<br/>withdrawable]
  E --> UP[Unrealized profit]
  UP --> MM[Maintenance margin<br/>minimum to avoid liquidation]
  MM --> UL[Unrealized loss if any]
  B -.->|Balance &lt; MM| L[Liquidatable]

Margin Types

1. Deposited Collateral (Balance)

The actual token balance held in the vault for the participant.

2. Maintenance Margin (MM)

The minimum collateral required to hold open exposure without triggering liquidation. Futures contributes order margin and position stress through the PME; per-contract notional is price × quantity (no duration factor).

3. Initial Margin (IM)

The higher buffer the account should sit at after a partial liquidation. Keepers close only enough exposure to restore the account into the [MM, IM] band when possible.

4. Unrealized PnL

For each aggregate:

pnl = mark × netQuantity − netEntryValue

Profitable exposure reduces effective margin pressure; losses increase it.

Margin Examples

Example 1: Opening a Long Aggregate

Balance:        100.00 USDC
Mark / entry:   4.10 USDC
netQuantity:    +1
netEntryValue:  4.10

Unrealized PnL = 4.10 × 1 − 4.10 = 0

Portfolio IM/MM come from the PME shocks applied to the account's net exposure.

Example 2: Price Moves Against a Short

Entry:          4.10   (netQuantity = −1, netEntryValue = −4.10)
Mark:           4.12

pnl = 4.12 × (−1) − (−4.10) = −0.02 USDC   (loss)

If vault balance falls below MM, the account is liquidatable.

Example 3: Price Moves In Favor of a Short

Entry:          4.10
Mark:           4.08

pnl = 4.08 × (−1) − (−4.10) = +0.02 USDC   (profit)

Liquidations

What Triggers a Liquidation?

A participant becomes liquidatable when portfolio margin reports:

Balance < Maintenance Margin

Liquidation is permissionless: any address can submit a liquidation transaction once that condition holds.

Keeper incentives are currently disabled. The liquidationFee parameter is retained in storage and still appears on liquidation events, but payouts are fixed at 0.

Liquidation Process

The trigger is an MM breach, but the goal is to restore the account to its IM buffer: liquidation closes only as many contracts (across expiries) as needed to bring the balance back to (at most) IM — not necessarily the whole book. The keeper selects the worst-first subset off-chain.

flowchart TD
  A[Keeper: Balance < MM] --> B[liquidateOrders user]
  B --> C{Still under MM?}
  C -->|no| D[Done]
  C -->|yes| E[liquidatePositions user<br/>expirationAts + closeQtys]
  E --> F[Close worst-first subset at mark]
  F --> G{Positions remain and IM &gt; MM?}
  G -->|balance &gt; IM| H[Revert OverLiquidation]
  G -->|balance ≤ IM or full close| I[Accept]
  I --> J[Bad debt if any → insurance fund]

liquidatePositions(user, expirationAts[], closeQtys[]) closes the keeper-supplied set in one transaction and reads margin once at the end: if any exposure remains and a real IM > MM buffer exists, it reverts OverLiquidation when leftover balance ends up above IM. A fully-closed account skips that guard (deep-underwater / bad-debt path). Zero-net or unknown expiries in the batch are skipped. The single-expiry entry point liquidatePosition(user, expirationAt, closeQty) remains available.

All entry points revert with NotLiquidatable when the target's Balance ≥ MM, and position entry points revert OrdersStillOpen while resting orders remain.

Off-chain Keepers

Role of a Keeper

A keeper is any off-chain service that:

1. Monitors participant margin utilization
2. Alerts users when utilization exceeds warning thresholds
3. Submits liquidateOrders / liquidatePositions for undercollateralized accounts, sizing the worst-first close so the account lands back within the [MM, IM] band

Because liquidation is permissionless, there is no privileged validator role for this flow.

Margin Utilization Calculation

Utilization = Min Margin / Balance × 100%

< 80%:    Safe
80-100%:  Warning (notifications sent)
≥ 100%:   Liquidatable by any keeper

Best Practices

For Traders

1. Monitor Utilization: Keep utilization below 80% to avoid warnings
2. Add Buffer: Deposit more than the minimum required
3. Set Alerts: Use the notification service for margin warnings
4. Act Quickly: Top up collateral immediately when warned

For Miners (Sellers)

1. Account for Volatility: Hash prices can move significantly
2. Conservative Sizing: Don't over-commit production capacity
3. Settlement Reserves: Keep extra margin to cover an adverse mark at maturity settlement

Utilization Guidelines

Read next

• Trading Guide - Managing orders and positions
• Settlement - Cash settlement of positions at maturity