Huobi’s derivatives trading platform, Huobi DM, is now live with a new partial liquidation feature. Essentially, this aims to protect the traders from full liquidation in case of severe volatility.
While other competing platforms charge a fee for partial liquidation, Huobi DM offers this latest introduction at zero fees.
Will it be groundbreaking?
According to Huobi, the mechanism will prevent a bad market situation from getting worse. In the recent market crash assets worth $27.45 million were liquidated over Huobi’s platform.
As one of the most active crypto derivatives platforms, Huobi Futures understands that traders with high leverages are exposed to greater market risk. In case of unexpected volatility, such traders lose all of their positions. And that is what happened last week.
To protect their interests against unnecessary exposure, Huobi DM has adopted the partial liquidation feature and circuit breaker mechanism.
Less likely liquidation
In the recent upgrade, Huobi has lowered the adjustment factors that trigger liquidations. Effectively, the Margin Ratio for any leveraged trade remains higher on Huobi DM compared to other platforms.
Margin Ratio = (Equity Balance / Used Margin) * 100% — Adjustment Factor
As a result of this, there would be lower chances of liquidation in Huobi’s platform.
A gradual liquidation approach
Huobi DM also outlined a different approach to asset liquidation. Instead of the user position transitioning directly from 1 to 0, the position will drop gradually creating a step-by-step liquidation scenario. It will thus go from 1 to 0.5/0.1/0.01/0, thereby offsetting the risk during a meltdown.
With this upgrade, the system will thus start reducing the user’s positions partially. Side by side, it will keep calculating the margin ratio and continue partial liquidation until it meets the requirement.
The new liquidation feature also includes a circuit breaker. This safeguards the user positions in case of unusual deviations detected between the liquidation and market price.
It will also ensure liquidations are terminated for positions with a margin ratio of ≤ 0%, thereby protecting the trader’s assets in case of drastic price swings.
According to Huobi representatives, this feature introduction had been in pipeline for a long time. It was denied to be triggered in any way by the recent market crash where millions were liquidated.