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Anyone involved in leveraged trading must take the risks associated with potentially highly rewarding practice. A recent event should remind traders that sometimes, even when the trade goes your way, you can still achieve success. Okex socialized the massive loss of a BTC futures trader with a clawback.
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Forced Liquidation
Okex, the Hong Kong-based cryptocurrency exchange, has announced that "a huge long position" in the BTC0928 futures contract was forced to liquidate on July 31, 2018. And because of the pure size of the order, worth over $ 400 million, the discovery loss (about $ 9 million) will have to be socialized with a clawback.
According to the risk management mechanism of loss of the headquarters structure, when the insurance fund can not cover the total margin losses, a complete clawback of the account occurs. In this case, users who have a net profit on all three contracts for that week will be subject to the clawback. "We will take a portion of the profit in equal percentage from all profitable economic operators only to cover the difference between the liquidated price and the established price."
Incident Report
In the detail of the incident, the exchange wrote that: "customer with the user ID 2051247 has started an unusually large long position order (4168515 contracts) at 2 am July 31st (HKT) and activated our risk management alert system.Our risk management team immediately contacted the client, asking the client several times to partially close positions to reduce overall market risks However, the client refused to cooperate, which led to our decision to freeze the client's account to avoid further positions, unfortunately, after this preventive action, the price of BTC is collapsed, causing the account to be liquidated. "
The Okex team added that:" In order to prevent socialized clawbacks from occurring, we have worked hard to optimize our risk sis. management theme, such as the launch of pricing rules, the forced early settlement system, the forced settlement of liquidation order prices and more. There have been malicious voices accusing us of manipulating the forced liquidation system. We would like to underline that most of the similar price movements on the market are caused by forced settlement orders. "
Will not Happen Again?
To reduce the market risks posed by this incident, Okex said which is injecting 2,500 BTC from its capital pool into the insurance fund and will monitor the settlement to avoid attempts at manipulation.These actions will help reduce the socialized clawback rate of the week.
The exchange also announced that it will implement a series of improvements in risk management, which aim to prevent similar cases from occurring again, including a new anti-handling policy, a brand price to be issued at the end of August, a system of level margins and a process optimization of forced liquidation and an optimization of the use of insurance funds to be issued in September.
Is it a fair way for a trading platform to handle such situations? Share your thoughts in the comments section below.
Images courtesy of Shutterstock.
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