✂️Profit Deduction

When there are many winners and few losers, session liquidity can go negative:

If a trading session closes with negative session liquidity, 'profit deduction’ occurs. Realized gains are proportionally reduced such that session liquidity is zero. The reduced profits are then paid out.

Liquidity crunches such as described are the reason that profitable trades are not paid out immediately. Realized gains of trades are always held until the end of a trading session. This is protection in case a profit deduction needs to occur.

There is no such thing as unlimited profits on any exchange, but usually on traditional exchanges you do not know the limit until it is breached, and profits may 'disappear' or you start having issues with withdrawals. On DXS, you always know how much liquidity is available for you to take profits.

If you want to read more on Profit Deduction, read this post. Or watch this video:

What is the calculation used for profit deductions?

Profit Deduction is calculated as follows:

(session profits - 96% session losses) / (96% session losses + 0.33% liquidity pool)

What if someone loses a trade after the deduction has been applied?

The lost funds go back into the liquidity pool. This amount would determine how much the profit deduction is decreased on everyone’s positions.

Deducting hard-earned profits is ridiculous, isn't it!?

Profits cannot be guaranteed. You cannot win more than other people lose. As mentioned before, there is no such thing as unlimited profits on any exchange. Typically on traditional exchanges you do not know the limit until it is breached.

On a traditional exchange, or if trading through a brokerage, if there is no liquidity to cover all positions there will be slippage, delays in withdrawals or profits may even 'disappear'. We want to avoid that as much as possible by using a transparent liquidity model, and by incentivizing community growth.

As we scale and our user base grows, profit deductions should not be a regular occurrence. The protocol will apply it occasionally to counteract liquidity crunches.

Are deducted profits lost forever?

No. When profit deduction occurs, profit that is withheld stakes into the 28th funding round of the liquidity pool. This allows for profit recovery. After the first 27 rounds are repaid, you begin to receive your proportional share of 3% of trading losses.

This continues until your deducted profit is repaid, along with 28% interest.