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These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange. Okcoin uses socialised losses (clawback), bitmex us

by verroq 9y ago

These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange. Okcoin uses socialised losses (clawback), bitmex uses ADL with their insurance fund. Bitfinex does some weird stuff. They hold up pretty well during large price crashes.

JumpCrisscross 9y ago
> These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange In a crisis, prices move discontinuously. On one side of the discontinuity, you have adequate reserves. On the other side, you're broke. There is no moment in between when one gets to gently liquidate collateral. > They hold up pretty well during large price crashes Usually I'd say past performance does not guarantee future results, but in this case, we haven't had the past performance. Every Bitcoin has responded to even intraday crashes by pulling the plug [1]. [1] https://news.bitcoin.com/coinbase-customers-suffer-from-delays-as-withdrawal-period-ends/ https://news.bitcoin.com/coinbase-customers-suffer-from-dela...
- verroq 9y ago
  Prices only move because of successfully filled orders. It is extremely unlikely that the bid side of the orderbook is completely empty. The worse case is that longs may get liquidated substantially below their liquidation price, depending on the exchange, loss is either socialised or paid thru the insurance fund. At no point would the exchange be bankrupt. Coinbase/gdax is a joke of an exchange and handles nowhere near the volume of bitmex or bitfinex.
  - JumpCrisscross 9y ago
    > It is extremely unlikely that the bid side of the orderbook is completely empty It still happens quite often. In practice, the buy-side order book doesn't vanish. It just goes from $19k, $19k, $19k to $17k, $9k, $2k. The liquidating exchange hits the $17k, and then the $9k. Now you have a trade at $9k which (a) prompts further forced liquidations and (b) causes everyone to panic. > loss is either socialised or paid thru the insurance fund Insurance fund? Who is insuring Bitmex? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...
    - verroq 9y ago
      https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund And cascading margin calls are possible, but it seems like all exchanges except for gdax/coinbase have a strategy to handle it.
      - JumpCrisscross 9y ago
        > https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund That isn't an insurance fund. It's BitMEX's reserves, re-branded. In the event of a crash the value of these assets would fall. If the price drop is large enough, it could burn through these reserves. It is prudent that BitMEX seems to be holding reserves. This is what good exchanges do! But consider why Goldman Sachs is requiring 100% margin while Bitfinex is doing the same at 30% [1]. The additional risk is borne by the exchange's (or in GS's case, broker's) equity. When that runs out, the exchange (or broker, as applicable) busts. We separated broker-dealers, who can lend on margin, from the exchanges in the equity markets for a reason. > it seems like all exchanges except for gdax/coinbase have a strategy to handle it Based on what? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...
  - pishpash 9y ago
    Lending rates on bitfinex imply a huge counterparty risk. Somehow I believe what that tells me more.
  - physguy1123 9y ago
    Prices can move without filled orders no problem as orders get cancelled. If market makers start pulling out, the order book can become extremely thin. For the passive traders that stay in they'll probably react much more strongly to trades on the book, so even if some liquidation makes it through much won't. Look at the GDAX ethereum crash for a recent real-live crypto example.
tedunangst 9y ago
I would not want to trade on an exchange that claws back profits.
- verroq 9y ago
  It is called the woodchipper for a reason
qubex 9y ago
I upvoted you even though I disagree with your final statement since I saw you were being thrashed down. Hope this comment doesn't get buried because “does some weird stuff” is a pretty perfect summary of the borderline-criminal behaviour of that particular exchange.

by verroq 9y ago

JumpCrisscross 9y ago

> These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange In a crisis, prices move discontinuously. On one side of the discontinuity, you have adequate reserves. On the other side, you're broke. There is no moment in between when one gets to gently liquidate collateral. > They hold up pretty well during large price crashes Usually I'd say past performance does not guarantee future results, but in this case, we haven't had the past performance. Every Bitcoin has responded to even intraday crashes by pulling the plug [1]. [1] https://news.bitcoin.com/coinbase-customers-suffer-from-delays-as-withdrawal-period-ends/ https://news.bitcoin.com/coinbase-customers-suffer-from-dela...

verroq 9y ago
Prices only move because of successfully filled orders. It is extremely unlikely that the bid side of the orderbook is completely empty. The worse case is that longs may get liquidated substantially below their liquidation price, depending on the exchange, loss is either socialised or paid thru the insurance fund. At no point would the exchange be bankrupt. Coinbase/gdax is a joke of an exchange and handles nowhere near the volume of bitmex or bitfinex.
- JumpCrisscross 9y ago
  > It is extremely unlikely that the bid side of the orderbook is completely empty It still happens quite often. In practice, the buy-side order book doesn't vanish. It just goes from $19k, $19k, $19k to $17k, $9k, $2k. The liquidating exchange hits the $17k, and then the $9k. Now you have a trade at $9k which (a) prompts further forced liquidations and (b) causes everyone to panic. > loss is either socialised or paid thru the insurance fund Insurance fund? Who is insuring Bitmex? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...
  - verroq 9y ago
    https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund And cascading margin calls are possible, but it seems like all exchanges except for gdax/coinbase have a strategy to handle it.
    - JumpCrisscross 9y ago
      > https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund That isn't an insurance fund. It's BitMEX's reserves, re-branded. In the event of a crash the value of these assets would fall. If the price drop is large enough, it could burn through these reserves. It is prudent that BitMEX seems to be holding reserves. This is what good exchanges do! But consider why Goldman Sachs is requiring 100% margin while Bitfinex is doing the same at 30% [1]. The additional risk is borne by the exchange's (or in GS's case, broker's) equity. When that runs out, the exchange (or broker, as applicable) busts. We separated broker-dealers, who can lend on margin, from the exchanges in the equity markets for a reason. > it seems like all exchanges except for gdax/coinbase have a strategy to handle it Based on what? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...
- pishpash 9y ago
  Lending rates on bitfinex imply a huge counterparty risk. Somehow I believe what that tells me more.
- physguy1123 9y ago
  Prices can move without filled orders no problem as orders get cancelled. If market makers start pulling out, the order book can become extremely thin. For the passive traders that stay in they'll probably react much more strongly to trades on the book, so even if some liquidation makes it through much won't. Look at the GDAX ethereum crash for a recent real-live crypto example.

tedunangst 9y ago

I would not want to trade on an exchange that claws back profits.

verroq 9y ago
It is called the woodchipper for a reason

qubex 9y ago

I upvoted you even though I disagree with your final statement since I saw you were being thrashed down. Hope this comment doesn't get buried because “does some weird stuff” is a pretty perfect summary of the borderline-criminal behaviour of that particular exchange.