An amusing story about a Bitcoin Exchange auto-liquidating a futures trader that took a bet that was too big – not only did they wipe out their own account, but they managed to take out a bunch of others as well.
Reading the exchange’s press release on the matter, it looks like that they are discovering that allowing clients to take large concentrated positions in single securities may not be the best idea to ensure the stability of the brokerage.
It reminds me when the Swiss national bank decided to no longer support the Swiss Franc at the 1.2 Euro level peg, and then one nanosecond later it crashed through a glass ceiling with such force that it took out FXCM. Bitcoin exchanges are learning the lessons that others have learned – be very careful when allowing your clients to trade on margin as your ability to liquidate their holdings when they hit “the wall” may be imperiled by external market conditions.
Interactive Brokers (Nasdaq: IBKR), by far and away, has the best track record concerning customer usage of margin, but even they took a $120 million haircut during the Swiss Franc re-valuation. Their most recent action was raising margin rates on Tesla, which is somewhat telling.
Imagine being a client of IBKR and seeing an email that because of another customer’s highly leverage bets going bad, that they’re going to be taking away 18% of your accumulated profits to compensate for the exchange’s loss on extending the external customer credit!