Huobi’s Derivative Trading Platform Adds Partial Liquidation Feature To Limit Losses
Huobi DM, the derivatives trading platform from Huobi, has made the announcement of a new partial liquidation aimed at limiting trading loses.
Highly leveraged positions can be immediately liquidated by sudden swings in the market and cause the users to extensively lose, as it was seen during the Bitcoin’s (BTC) price crash from last week. The new liquidation mechanism from Huobi DM is going to take action whenever the markets are turbulent so that traders aren’t impacted, said Huobi in a statement.
Swings in the Market Cause Problems
As a result of the recent effects of the coronavirus, also of the crypto and stocks uncertainties in the market, the prices of assets went through some abrupt changes. Between March 12 and March 13, BTC’s value dropped more than 50% and bounced off the bottom. The crash caused half a billion dollars of liquidations at BitMEX in only 1 hour, not to mention the BitMEX system was offline and had users saying the liquidations were unnecessary.
The denial-of-service (DDoS) was to blame. During the same crash, Huobi had liquidations of about $27.45 million. After a swing in the stark price, liquidations take place as soon as holders no longer hold enough capital with the exchange they’re using for trading, which results in a closure in the trading position.
Huobi DM’s Approach
With the new adjustments, Huobi DM intends to make the all-or-nothing mechanism of liquidation better. This new mechanism offers partial liquidation, reducing the users’ positions gradually instead of performing a full liquidation with 1 event. Here’s how Huobi DM explained its approach:
“With the new mechanism, the system will automatically start liquidating a user's positions in stages—at predetermined margin ratios determined by the user's calculated exposure—until the margin ratio reaches above zero. The liquidation process also includes a circuit breaker function that halts liquidation when large or unusual deviations between the liquidation price and market price are detected.”
The new feature will apply to all the derivatives exchange’s leverages and assets, decreasing the maintenance margin ratio and updating the system’s firmware. No further comment has been made yet by Huobi, but it’s expected for some additional news to be released soon on the matter.