OKEx’s unrivaled risk control management offers access to a more secure derivatives trading environment
Derivatives exchanges render trading services for market investors and rely on commissions to maintain operation. Since derivatives exchanges make users accessible to the derivatives market, safeguarding their assets becomes a key indicator for evaluating exchanges’ technical capability. As a world-leading derivatives exchange, OKEx understands only protecting derivatives traders’ interests can highlight the value of the blockchain world.
Therefore, thanks to OKEx’s upgrade on its risk control systems since late 2018, the frequency of full liquidation, flash crashes and margin calls resulting from market abnormalities and large position close-outs decreases significantly. Our perpetual swap trading also achieves “no delay, zero clawback and great market depth” in 2019 after years of product and technology development.
Liquidation system reflects a derivatives exchange’s risk control capability. We take a number of factors, including market depth and basis, into account in designing our liquidation system. Large position close-out can be avoided after we go into complex computation and place large orders at more favorable prices in the secondary market, thus mitigating the impact of placing short orders at bankruptcy prices in the market.
Our mechanism effectively hedges liquidation risks amid huge market fluctuations. For example, on 24 February, BTC was down 13% in a short period of time, but BTC contract holders were not subject to clawback; and on 2 April, no margin call was triggered as a result of big fluctuation when OKEx’s maintenance margin ratio was 10%, compared to Huobi’s ratio of 30%. This tells why OKEx outdistances others in terms of risk control capability.
Figure 1 Comparison of OKEx, BitMEX and Huobi’s liquidation systems
- Insurance fund
Insurance fund is applied by derivatives exchanges to offset clawback and market manipulation risks. Its main sources include OKEX’s insurance fund as well as liquidation users’ liquidation balance deposits and insurance funds. In case of clawback and market manipulation, we use insurance fund first to offset losses, so as to avoid clawback risks.
Since its inception, our insurance fund has been increased to help investors protect their assets. In August 2018, OKEx withdrew 2500 BTC to reduce the abnormal clawback rate. Also, Jay Hao, OKEx’s CEO, donated USD1.3 million worth of digital assets to OKEx’s swap insurance fund in his own name in February 2019. We act proactively to safeguard our users’ capital.
- Tiered margin & liquidation system
Through establishing a tiered margin system, OKEx controls market risks within a reasonable range. The larger a user’s position is, the higher the maintenance margin ratio and the fewer the maximum leverage options are. We also set up a partial liquidation system based on such system: when a position’s tier is higher, partial liquidation is taken place to meet the maintenance ratio of a lower tier, in order to avoid unnecessary fluctuations and risks during large liquidation.
Our well-established risk control systems lay a solid foundation for our strong risk control capability unmatched by other crypto exchanges. Not only our users’ assets are placed under protection, we also offer a better trading environment for derivatives traders.
As what our CEO Jay Hao said at the end of 2018: “OKEx’s team will mainly focus on safety, innovation and credibility in future”, we have been striving for achieving our goals since then, as evidenced by our advanced upgrade on risk control technology. On the derivatives trading side, our key mission is to enhance users’ assets and trading safety.