Crypto exchange OKEx[1] has issued an official statement[2] today, August 3, in response to its forced liquidation of a colossal misfired Bitcoin[3] (BTC) futures trade worth a notional $416 million[4] that was initiated by an unidentified problem trader earlier this week.
OKEx, currently the world’s second largest[5] exchange by traded value, has said that its risk management alert system was immediately triggered when the long position was initiated by an anonymous futures trader at 2 a.m. (Hong Kong Time) July 31.
Due to the “sheer size of the order” — a whopping 4,168,515 contracts, according to OKEx — the exchange says it took preemptive action, explaining that their risk team asked the client to “partially close the positions to reduce the overall market risks” several times,
“However, the client refused to cooperate, which lead to our decision of freezing the client’s account to prevent further positions increasing Shortly after this...unfortunately, the BTC price tumbled, causing the liquidation of the account.”i
The exchange has added that it has since then injected 2,500 BTC (around $18.5 million) into an insurance fund to help mitigate the losses incurred by the force-liquidated trade.
Crucially, aside from this insurance cover, the platform does not itself provide the funds that traders use to leverage their futures contracts — OKEx positions can notably be leveraged[6] by as much as 20 times under current rules. Instead, it operates using a so-called “socialized claw-back” policy[7] for cases where a trade shortfall is incurred.
The “claw-back” means that the losses from the unfilled order will need to
