Unexpected market volatility can quickly result in dilution of highly leveraged open positions, resulting in enormous losses to traders as seen last week when Bitcoin crashed below $5,000 level.
The platform’s latest position dilution system will become effective when markets turn volatile. That will nullify the effect on traders, according to a statement by Huobi.
The rampant spread of COVID-19 has sparked fears among crypto and traditional market traders, leading to wild swing in prices.
Between March 12 and 13, Bitcoin saw a value erosion of over 50%, before rebounding slightly.
When the market plummeted, BitMEX recorded dilution of $500 million worth positions within an hour. The platform also went offline, causing anxiety to clients.
Some also allege that positions were closed unnecessarily because of blackout. BitMEX pointed finger on denial-of-service (DDoS) attacks.
Roughly $27.45 million worth positions were diluted by Huobi’s platform within few hours.
Following huge price volatility, liquidation happens when speculators fail to hold adequate capital in their trading account with the cryptocurrency exchange, resulting in dilution of positions.
Huobi DM’s latest overhaul intends to enhance the all-or-nothing kind of liquidation system that erases all outstanding positions in a single stroke. The latest feature facilitates partial liquidation.
The platform systematically minimizes clients’ exposure instead of diluting the entire outstanding positions at once. Huobi DM elaborated:
“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 stated that the latest feature is available to all listed assets and capitalizes on the derivatives exchange.
Furthermore, the company reduced its maintenance margin ratio and also overhauled the platform’s firmware.