Forced Deleveraging of Short Contracts by Binance
Hi Guys,
So some traders are upset with Binance because their bitcoin futures contracts were automatically closed recently.
This phenomenon can actually happen in other asset classes but doesn't because of greater depth of liquidity.
It is called "forced deleveraging" and happens when the exchange is at risk of taking losses because there's an imbalance between the ratio of long and short contracts---usually exacerbated by illiquidity and volatility.
There was a famous case, reported on by the mainstream financial press, whereby the crypto exchanged failed to have "forced deleveraging" implemented in their exchange algorithm; and had to later resort to "socializing losses" in order to balance its books.
Best,
Putrid
So some traders are upset with Binance because their bitcoin futures contracts were automatically closed recently.
This phenomenon can actually happen in other asset classes but doesn't because of greater depth of liquidity.
It is called "forced deleveraging" and happens when the exchange is at risk of taking losses because there's an imbalance between the ratio of long and short contracts---usually exacerbated by illiquidity and volatility.
There was a famous case, reported on by the mainstream financial press, whereby the crypto exchanged failed to have "forced deleveraging" implemented in their exchange algorithm; and had to later resort to "socializing losses" in order to balance its books.
Best,
Putrid