Singapore based cryptocurrency exchange Huobi has rolled out the circuit breaker and “partial liquidation” feature to minimize the trading losses on Huobi DM.
As seen during last week’s Bitcoin price collapse, can quickly liquidate highly leveraged positions and trigger significant user losses in sudden market fluctuations.
The new liquidation mechanism of the platform will leap into action when the markets face volatility to minimize the trade effect, Huobi said in a statement.
Uncertain Market Condition Causes Issues
Amid recent fears of coronavirus, and stock and crypto market volatility, asset prices have seen violent swings. Around 12 and 13 March, before bouncing off the edge, Bitcoin fell more than 50% in value.
BitMEX saw liquidations reach half a trillion dollars in an hour after the crash. It also went offline, which has resulted in premature liquidations from some users. It blamed denial-of-service (DDoS), as the culprit attack.
During the crash, Huobi saw around $27.45 million in liquidations in a couple of hours.
After a sharp price spike, liquidation happens when traders do not retain enough money in the market they are trading on, leading to a closing of their trading position. The new improvement by Huobi DM is aimed at improving the all-or-nothing liquidation mechanism which wipes out funds all at once.
Huobi DM takes a different approach
The new liquidation system offered by Huobi DM provides partial liquidation options. The system slowly reduces the roles of consumers, rather than in one event liquidating them in full. Huobi DM commented:
“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.”
Huobi DM said the latest feature applies to all of the derivatives market assets and leverages. In addition, the outfit reduced its maintenance margin ratio and revised the firmware of its program.