OKEx Emergency Mode Activates As Trader Takes 4.16 Million BTC Futures Position On Crypto Exchange
The second most important virtual currency exchange in the world, OKEx, activated its emergency mode in July. The situation was triggered when a trader decided to take a 4.16 million Bitcoin (BTC) futures position on the exchange.
This position was too large for the exchange to be able to conduct it properly. The exchange had to trigger the failsafe risk management system, which forces futures traders to give 18% of their profits.
The ‘socialized clawback mechanism’ works by taking a small percentage of profit from short position traders in order to cover financial shortfalls. This situation has been triggered because the exchange insurance fund was not enough to cover margin call losses.
However, the client did not want to liquidate part of his long position order when approached by the exchange. In order to solve the situation and avoid further problems, OKEx decided to freeze his account.
This shows that the industry still needs regulations in order to become effective and more mature. Exchanges need to have better protection, such as in conventional stock exchanges. Brokerages tend to act as buffer in order to ensure that client have enough margin deposits and risk management in place on margin calls.
Due to the fact that Bitcoin price dropped after the situation, the exchange had to liquidate the clients’ account. The required maintenance margin ratio was not enough to cover the losses. The results were 1,200 BTC valued at that moment at $9 million dollars. OKEx had to add 2,500 of exchange funds to the insurance fund. In this way, it was possible to limit the clawback.
About the situation OKEx explained:
“An enormous long position in BTC0928 futures contract was force-liquidated at 20:17 July 31, 2018 (Hong Kong Time, UTC+8). Due to the sheer size of the order, our risk management system may be triggered to activate the societal loss risk management mechanism.”
There were some comments from the community asking the exchange how the company allowed for such a large trade to be placed. Additionally, there are some questions about how the system was triggered after the trade had been made.
OKEx is the second most important virtual currency exchange in the market according to its trading volume. In the last 24 hours, the exchange registered $839 million dollars trading volume with BTC/USDT, ETH/USDT and EOS/USDT being the most important trading pairs. These three different markets account for 45% of the total trading volume in the platform.