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SBF
@SBF_FTX
Replying to
@SBF_FTX
6) By the time the next business day ends, there have been 3 days for volatility. A 25% move bankrupts the trader. A 50% move means that someone's out $1b of insurance. That could happen in 3 days! And, in fact, it did, in Nickel. (Note the weekend gap!)
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SBF
@SBF_FTX
7) There are really two problems here. First, the exchange margin calls based on _time_, not _price_. What does that mean? Well, when X reaches 6x leverage on a $4b position, it's time to issue a margin call.
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SBF
@SBF_FTX
8) The goal of the margin call: before X runs out of collateral, either (a) X tops up their collateral (b) X reduces their position Once the contract reaches a price of $1.66, X will fully run out of collateral; any move beyond that and X goes _negative_ account value.
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SBF
@SBF_FTX
9) Which means--the goal is for X to de-leverage before the contract reaches $1.66. Time is arbitrary! The contract could move 1% in 3 days, or it could move 150%. What matters is the price. You have to close down before contracts hit $1.66.
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SBF
@SBF_FTX
10) Say that closing down X's position--buying back 3b contracts--would have 10% impact. The means that, if X isn't going to top up, you have to start reducing their position before the contract hits around $1.50--adding 10% impact to that would impact markets to around $1.66.
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SBF
@SBF_FTX
11) So in this hypothetical, you have to begin liquidating X's position when the contract hits $1.50. completely independently of _when_ that happens. If a week later the contract is at $1.35, it's fine. But if a minute later it's at $1.50, it's time to start closing down X.
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SBF
@SBF_FTX
12) This is how liquidations work on FTX--we begin de-leveraging a position as soon as it's running too low on collateral, independent of how long it's been. We *have* to--that's the only way we can stop things like this! Sometimes 1 day is too long.
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Bloomberg
@business
Official
The LME will reopen its nickel market on Wednesday, more than a week after the exchange suspended trading and canceled about $3.9 billion of transactions as it grappled with an unprecedented short squeeze trib.al/DvBvLjj
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SBF
@SBF_FTX
13) Anyway, that's one of the core innovations of digital asset exchanges--real-time margining. The other problem that LME Nickel ran into was the weekend. The exchange wasn't open for a few days, and so the _fastest_ they could margin call was 72 hours.
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SBF
@SBF_FTX
14) This exacerbated the original problem--instead of eating 1 day's risk, they were eating 3 days'. Another difference with crypto markets, which operate 24/7--allowing 24/7 margin calculations and de-leveraging.
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โš’๏ธ //unchtime
@l_unchtime
Replying to
@SBF_FTX
If at the very least, crypto can replace traditional markets and prevent this shit storm from ever happening, then we've at least made -some- progress on the world stage.
2017PTSD
@FOMOZEN
Replying to
@SBF_FTX
What happens if the platform stops taking orders when you try to reduce your position size? Then you re-place the order again, and again but the platform won't take the order? Then 20 minutes later the platform executes ALL of the orders and massively reduces your...
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reevus
@Reevus_Reeve
Replying to
@SBF_FTX
Hey Sam, how do you calculate the opening price of a move contract on next day move, they to open between 1000-1100 per contract