A futures trader is playing a role in today’s cryptocurrency market slide, as Bitcoin (BTC) dropped 7% to around $7,000, dragging some altcoins into double-digit losses.
Hong Kong-based OKEx, the world’s second largest cryptocurrency exchange by trading volume, said it was forced to cover a trade when an anonymous futures trader, who made a wrong-way bet on Bitcoin, was unable to cover losses when Bitcoin’s price went down.
The enormous long position, worth approximately $416 million, was force-liquidated on July 31. At that time, OKEx released a statement that due to the sheer size of the order, their risk management system could trigger the “societal loss risk management mechanism.”
Under the risk management mechanism, profitable futures traders (aka counterparties) are forced to give up approximately 18% of their earnings to cover losses generated by the investor who placed the enormously bad trade.