BitVC replaces socialized losses for negative balances with a new system

BitVC, Huobi's bitcoin futures trading exchange, will be discontinuing its controversial system of social losses for negative balances and replace it with a new system called 'automatic counterparty deleveraging'.

A company spokesperson said that the new method is the first of its kind in the bitcoin futures market and offers a considerable improvement over other similar risk-management systems available in the markets.

"When a trader's dynamic equity falls to the forced liquidation trigger level, the system automatically closes his position. However, during periods of extreme market volatility, there may be insufficient counterparty buy or sell orders in the order book, resulting in a failure to complete the forced liquidation at the target price and a negative account balance", the representative said.

In case of a forced liquidation, the system will automatically lower the leverage of the most highly-leveraged open counterparty positions by the amount necessary to fill the liquidation order at the target price. This helps to prevent occurrence of negative balances and thus eliminates the need to socialize losses.