Huobi DM, the derivatives platform of the spot exchange giant, has updated its liquidation mechanism to minimize the risks in the volatile market.
Announced on Thursday, the platform will now offer partial liquidation, meaning the mechanism will gradually reduce a user’s positions rather than liquidating them in full in a single event.
In the traditional futures platforms, liquidation is triggered in full at the moment a user’s margin ratio is equal to or less than zero. This puts the traders at huge risk as a sudden market swing will immediately liquidate highly leveraged positions, causing extensive loss to the trader.
Better to be cautions
To prevent such risks, Huobi’s new mechanism 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.
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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.
Commenting on the new mechanism, Ciara Sun, VP of global business at Huobi Group, said: “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.”
The new liquidation process will be applicable to all the trading pairs listed on the platform.
With the recent turmoil in the global markets due to COVID-19, the crypto markets also saw a massive downturn with a significant increase in volatility. Bitcoin recently shed around 40 percent of its gains achieved in months after the long bear in the market.