In perpetual futures, if there is automatic liquidation, wouldn't that exacerbate volatility in times of high market stress? Or, are their price limits/circuit breakers that would stop the market in the case of extreme volatility?
Liquidiation is usually treated as just one aspect of a risk managment program, there is also generally an insurance fund and auto-deleveraging tool to prevent cascading issues. The circuit breaker is a tricker question. I think the DCMs are required to have this tool available. Unregulated exchanges might not, and in practice users are probably relatively exposed to the decision making of exchange pricipals in moments of high stress.
Craig Pirrong blogged about perpetual futures and forced sales during the SBF escapades at StreetwiseProfessor.com. It also is super interesting to think about Swaps potentially coming into a DCM. Massive massive and misunderstood market
In perpetual futures, if there is automatic liquidation, wouldn't that exacerbate volatility in times of high market stress? Or, are their price limits/circuit breakers that would stop the market in the case of extreme volatility?
Liquidiation is usually treated as just one aspect of a risk managment program, there is also generally an insurance fund and auto-deleveraging tool to prevent cascading issues. The circuit breaker is a tricker question. I think the DCMs are required to have this tool available. Unregulated exchanges might not, and in practice users are probably relatively exposed to the decision making of exchange pricipals in moments of high stress.
Craig Pirrong blogged about perpetual futures and forced sales during the SBF escapades at StreetwiseProfessor.com. It also is super interesting to think about Swaps potentially coming into a DCM. Massive massive and misunderstood market