Embracing a New Era of OKEx Futures Trading

in #blockchain3 years ago (edited)

With over $1.5B trading volume daily, OKEx’s futures trading market has always been the most popular market on our platform. Complex as it is, the financial instrument is always appealing to crypto traders, because of leverage as high as 20x.

OKEx is a peer-to-peer leveraged trading platform. Traders on OKEx has no obligation to top-up additional margin — the max. The loss of a trader is the margin they pay for entering a contract. Therefore, the downside risk is limited. Yet, that comes with a cost — under extreme volatility, traders on a winning side might not able to get his expected profit in full.

Just a few days ago, Bitcoin’s price plummeted by 13% in only 30 minutes, while that of other assets like EOS also dropped more than 20%.

So, you can imagine, under this kind of extreme situation, a lot of positions could be liquidated. Even worse, if the total margin call losses were huge, a clawback could have occurred.

When this happens, a robust risk management system is crucial to protect every trader’s interest.

A Major Upgrade

We would like to remain a relatively low maintenance margin — hence higher effective leverage — for our futures traders. We would like to focus on improving and optimizing our liquidation engine instead of growing our insurance fund rapidly. We know it is harder than simply raising the maintenance margin, because we have to carefully evaluate the risk and balance on the possibility of triggering cascade liquidation.

We did struggle to avoid the negative consequence (clawback) of low maintenance margin requirement. But now with the new upgrade, we are proud to say that, we have found the perfect balance.

This week, even under such a volatile market, with Bitcoin’s price dropped 13% in minutes, we were able to achieve ZERO clawback on BTC, ETH, EOS, BCH, BSV contracts, with the help of our system upgrade and also our insurance fund.

Our development team has spent months to enhance the risk management system. Last week, we implemented 3 major upgrades:

1. Upgrade on Liquidated Futures Position Price Calculation

Creating a more reasonable entrusted price, instead of using bankruptcy price, for reselling liquidated positions taking account of factors such as market depth and basis, so as to minimize market impact, increase return, and grow the insurance fund.

When a position is forced-liquidated and taken over by the forced-liquidation engine, it will not be put into the market at the bankruptcy price directly. Instead, the entrusted price will be calculated based on current market depth, basis, bankruptcy price, and index price to increase transaction efficiency and return to cover the loss.

2. Price Change Strategy for Liquidated Futures Positions

To avoid extended margin call loss and clawback when a one-sided market takes place

After the forced-liquidation engine has put a liquidated position to the market, the system will keep monitoring its trading status. If the order has not been fulfilled after a long period of time, the engine will cancel the unfulfilled order and re-post at a new price and amount based on the latest market depth, basis, bankruptcy price, and index price. This process will continue until the liquidated position is completely fulfilled.

3. Inquiry for Liquidated Positions and Margin Call Loss

a. After the price change, some positions may be transacted at lower prices than their bankruptcy prices (for closed long positions; or higher for closed short positions). The margin call losses caused by the difference between the bankruptcy price and transaction price will be shown in the forced-liquidation list.

b. The margin call losses caused by liquidated positions after price changes will be cleared with the margin call losses from unfulfilled liquidated positions altogether. The total loss will be compensated by the insurance fund. If the fund falls short, the remaining loss amount will be socialized through our clawback mechanism.

c. The total margin call loss can be checked on the forced-liquidation page:

Total margin call loss = Margin call losses of fulfilled liquidated positions + Margin call losses of unfulfilled liquidated positions

We Will Continue Our Efforts

For sure, we will continue our journey on building the most trusted digital asset exchange. Although we made a giant step forward for our futures trading system, we know that there is still room for improvement that we can make. We sincerely thank each of our customers for supporting us all along. We also welcome your suggestions and comments to help us perfect our system. Please feel free to send us an email at [email protected] to tell us about your thoughts.

Risk Warning: Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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