3 ms·

I can't find Matt Levine's article about it (he explains it very well). The problem is that often you don't want positions to be quickly liquidated when a margi

I can't find Matt Levine's article about it (he explains it very well). The problem is that often you don't want positions to be quickly liquidated when a margin call comes. The current system of allowing traders time to post more collateral has risks (i.e. they might not pay), but the downside of automated liquidation is: 1) cascading liquidations as forced selling pushes prices down and triggers yet more forced selling 2) not every person is going to be able to monitor their positions 24/7, so they will get wiped out as they sleep (e.g. a farmer hedging their crop wakes up to find they lost all their money because the market temporarily dipped in price overnight)

pointsnfigures1 4y ago
Clearing is very complex to answer inline in this comment. It is not only collecting margin, settlement, and paying/collecting from accounts. It's also risk management. For example, CME and ICE have created proprietary algorithms that calculate the level of risk in a market based on open positions, daily liquidity, width of bid/ask spreads, and daily market movement of the future and underlying cash prices. SBF was basically talking out of his ass when he wanted every 30 seconds. In a volatile market, that would break the market. Price discovery would cease. Bid/Ask spreads would be super wide. Currently, there is a role for brokers to play by qualifying customers. I will tell you 99% of the VCs I interacted with and almost 100% of the entrepreneurs didn't truly understand clearing. Check out Bitnomial.com if you want to see how it is done in a crypto market the way it should be done. They went through at least a three year process at the CFTC to become a designated contract market in the US where lots of crypto exchanges have gone to Bermuda simply to avoid regulation.

3 ms·

I can't find Matt Levine's article about it (he explains it very well). The problem is that often you don't want positions to be quickly liquidated when a margi

by joosters 4y ago

pointsnfigures1 4y ago
Clearing is very complex to answer inline in this comment. It is not only collecting margin, settlement, and paying/collecting from accounts. It's also risk management. For example, CME and ICE have created proprietary algorithms that calculate the level of risk in a market based on open positions, daily liquidity, width of bid/ask spreads, and daily market movement of the future and underlying cash prices. SBF was basically talking out of his ass when he wanted every 30 seconds. In a volatile market, that would break the market. Price discovery would cease. Bid/Ask spreads would be super wide. Currently, there is a role for brokers to play by qualifying customers. I will tell you 99% of the VCs I interacted with and almost 100% of the entrepreneurs didn't truly understand clearing. Check out Bitnomial.com if you want to see how it is done in a crypto market the way it should be done. They went through at least a three year process at the CFTC to become a designated contract market in the US where lots of crypto exchanges have gone to Bermuda simply to avoid regulation.