Digitex operates automated market makers that maintain tight bid/ask spreads and provide extra liquidity to our futures markets. However, our market makers are actually programmed to lose money over time, meaning that we are never trading against our own customers for profit. The purpose of our market makers is to increase liquidity and to purposely lose money. This encourages traders on the exchange to compete amongst themselves for those losses, further increasing liquidity.
Of course, if our market makers are losing money this money must come from somewhere. And it comes from the system gains that are made by our Liquidation engine. Here’s how it works:
When a highly leveraged trader allows his account balance to go below the required Maintenance Margin balance needed to keep his or her position open, the liquidation engine is forced to take over his position and liquidate it.
Traders who allow this to happen instead of managing their position more responsibly will lose their entire Initial Margin, but it's possible that the liquidation engine gets a better price than the trader’s bankruptcy price and makes a small profit. This profit is added to the Digitex Insurance Fund which is maintained at 100,000,000 DGTX (10% of the total supply of DGTX). If the balance of the Insurance Fund goes above 100 million DGTX then instead of keeping this extra money indefinitely, we give that extra money to our automated market makers to lose back to our traders through trading losses.