MEASURES AGAINST MARKET VOLATILITY: HUOBI LAUNCHED NEW FUTURES LIQUIDATION MECHANISM

One of the challenges that has plagued the crypto market since inception is market volatility. The market fluctuation in the crypto ecosystem has made the market too difficult to predict.

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On can wake up one morning and see the market take a brand-new U-turn in favour of your available assets or against it.

This has made people become rich or bankrupt in minutes. Anyone that can offer solution to volatility is highly sorted for.

Today, we are looking at measures taken by Huobi to alleviate the challenges of market volatility in her exchange platform.

The Huobi derivative market (DM), being the leading digital assets derivatives trading platform from Huobi Group, had announced the launching of a new liquidation mechanism.

This mechanism is designed to systematically minimize, to the barest minimum, user exposure during the times of severe market volatility.

Being one of the world’s most engaged cryptocurrency derivative markets, Huobi DM is putting in place new safeguards, risk management and control, geared at providing users with a safe, reliable and secure trading platform.

What these futures contracts does is to allow users to speculate on the future prices of underlying assets, although this may also result in unnecessary exposure of users.

Looking at traditional futures trading, it could be noted that liquidation is triggered immediately a user’s margin ratio is equal or less than zero. This means a sudden market swing could automatically liquidate a highly leveraged positions, thus causing extensive user loses.

In order to minimize users’ liquidation risk, Huobi now provides partial liquidation. This is a new mechanism that gradually reduces users’ position instead of effecting a full liquidation in a single event.

According to a press release by Huobi,

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.

Still on this, Ciara Sun, VP of Global Business at Huobi Group had this to say:

Market volatility creates new arbitrage opportunities for users, but it can also lead to unnecessarily high-risk circumstances if the right measures aren’t in place to protect them. Our goal is to safeguard our users’ assets while providing a robust trading experience, so we’re using this partial liquidation mechanism to minimize the downside without diluting the potential upside.

This mechanism is available to all users and coins, as well as, leverages on Huobi are fully supported on Huobi DM.

You can read more about this here.

Thank you for reading.