Recently Huobi DM announced the launch of its latest product coming out of its Huobi Derivative Market (DM) – Perpetual Swaps. This represents the new phase in the evolution of Huobi’s derivative offering at the right time when the needs for hedge and protection in volatile market conditions are raised.
Apart from futures, perpetual swaps are another form of derivative product that allows users a better chance to hedge against market risk as well as arbitrage with leverage in volatile market conditions. When compared to futures, the biggest difference wraps your head around is that a perpetual contract has no expiry date, and thus enables a lot more trading opportunities and strategies.
The main reason why Huobi DM has decided to launch its Perpetual Swaps is that the values the company holds is so high. Huobi’s overarching value is the safety and security of its users’ funds, and risk aversion, not to mention it providing a seamless and user-friendly trading experience.
Volatility persists and hedge & arbitrage needed
Bitcoin market has been famed for its volatility since it broke into the mainstream media space. It was praised when it climbed to an all-time high price in 2017, and watched with interest as its price shed through 2018.
The market has, however, been maturing with volatility slowing and the price movements steadying. But Bitcoin still remains a volatile asset and has demonstrated its fluctuation heavily this year already.
When the crypto market moves down and up, with such volatility, there are both risks and opportunities. Perpetual Swaps offers a chance to make the most of the volatility by providing ongoing hedges and arbitrages.
We understand the current market volatility also presents abnormal conditions which can lead to drastic liquidation of futures contracts. This is one of the biggest pain points we have come across from veteran traders. Many of them told us war stories of the most recent collapse and how their positions were wiped out with no protections.
Huobi DM is risk-averse
We recently made the news by outlining our mature risk management mechanisms that have their roots in traditional markets but with its own uniqueness. We have seen, in the stock market, that abnormal conditions have triggered what is known as a circuit breaker to stop the exponential hemorrhaging.
Such crash also happened to crypto market on Mar. 12 when most crypto derivative exchanges suffered a lot due to mass liquidations and some even failed keeping the insurance funds positive, finally leading to CLAWBACK. But at Huobi DM, we managed to keep the ZERO CLAWBACK record across all futures contracts with a growth in BTC insurance fund thanks to our strong and well-established risk management. Especially, with our partial liquidation mechanism and liquidation circuit breakers, the threat of total liquidation in highly volatile markets is mitigated with Huobi. (Partial liquidation is too complex to understand completely; you can refer to the detailed instruction on Huobi DM website here: https://huobiglobal.zendesk.com/hc/en-us/articles/360000143042)
It is worth mentioning that the liquidation circuit breakers on Huobi DM do not halt trading while in traditional stock market their circuit breakers do stop trading, though the two both function as a protection.
More so, Huobi DM i offers a three-phase liquidation protection method that tries to pull the margin rate back to positive at the first beginning of liquidation process. This softens the blow of a potential liquidation, and Huobi DM charges no liquidation fees for this partial liquidation — which is different from most of our competitors.
EMA (Exponential Moving Average) is adopted combined with the latest market price in liquidation process, where only when the margin ratio calculated both from the latest market price and EMA goes down to or below 0% will liquidation be triggered.
A pre-set $500,000 is implemented in place as well to the insurance fund pool for each cryptocurrency swaps pair upfront the official launch. This can help users prevent from potential clawback losses at the very beginning of a new pair’s launch. Because in normal cases, there should have been no balance in the insurance fund at the launch. And a pre-set $500,000 of insurance fund means that Huobi would use the fund to pay for the clawback losses if there should be any clawbacks and the profited users had to pay back certain percentage of assets.
A logical step
Perpetual Swaps have been on offer in the cryptocurrency industry for some time now through other platforms. It’s a good tool for traders, and is an effective product. However, we have seen in the current offerings there are a lot of pain points and issues that have not been adequately addressed before their launch.
At Huobi, we have taken our time, we have listened to the traders, and we have instilled our values into launching a product, we know what is the best on the market. From safety and security, to risk aversion and user experience, Huobi Perpetual Swaps was always high on our priority list to launch and we are proud of the product we have put out today.
Digital assets are innovative investment products and their prices fluctuate greatly. This is not an invitation or an offer to buy or sell digital assets, nor is it a recommendation to buy or sell specific types of digital assets. Trading crypto currencies carries a high level of risk that may not be suitable for some people. Please rationally judge your investment ability and make decisions prudently.