1. What is a Flash Crash?
A Flash Crash, in the simplest terms, is the act of human intervention in the derivatives trading market, thereby affecting the users’ profitability.
In general, a flash crash shape seen on the futures trading platform is highly likely the result of human intervention in the market. The so-called flash crash shape refers to the rapid fluctuation of a certain price of any currency, shown as a long upper shadow line on the K-line chart, or rebound after a rapid break through. It is shown as a long lower shadow on the K-line chart.
2. Reasons for Flash Crash in Derivatives Trading Platforms
If investors start trading futures contracts, due to the leverage effect of margin trading, when the price fluctuates sharply within a short period of time, the point reached by the upper shadow line or the lower shadow line is likely to cause a large loss in the account. When the margin is not enough to maintain the original contract, it will lead to a situation where the overall equity is negative and will result in liquidation, which will affect the profit and loss of a large number of users.
3.How to Avoid Being Involved in a Flash Crash?
Choose a fair contract trading platform. The K-line service of the Bingbon trading platform refers to the spot market of many mainstream exchanges as the market data, completely eradicating common problems in futures trading platforms such as flash crashes, malicious trading, and network issues.
1) Bingbon’s K line originates from the spot data, so the platform cannot be manipulated.
For example (July 30, 2019, BTC/USDT, the first 15-point line)
(The following examples are situations when Huobi, Binance, and OKEx are under normal conditions)
Open = 9537.8, High = 9702.8, Bottom = 9400.0, Close = 9591.2
Open = 9539.60, High = 9700.00, Bottom = 9420.00, Close = 9588.23
Open = 9538.24, High = 9693.98, Bottom = 9411.31, Close = 9589.41
Based on the above market situation, the Bingbon contract trading market
Open = 9538.62, High = 9698.92, Bottom = 9410.43, Close = 9589.51
Compare to the K-line data of 4 exchanges at the same time
OKEx: Open = 9537.8, High = 9702.8, Bottom = 9400.0, Close = 9591.2
Huobi: Open = 9539.60, High = 9700.00, Bottom = 9420.00, Close = 9588.23
Binance: Open = 9538.24, High = 9693.98, Bottom = 9411.31, Close = 9589.41
Bingbon: Open = 9538.62, High = 9698.92, Bottom = 9410.43, Close = 9589.51
Tips: Due to the reasons mentioned above (It is possible that the market data from any one of Huobi, Binance and OKEx will be excluded from the calculation) as well as the difference in the three exchange’s speeds of publishing data, Bingbon does not ensure its market data is the same as the mean value of the data from the three exchanges.
For more details of Index Price Calculation of Standard Contracts, please click the link below:
Digital asset derivatives trading is highly leveraged and risky, and may result in partial or total loss of account funds. Before conducting contract trading, investors must ensure that they understand the nature and rules of contract trading, and decide whether to participate in contract trading based on their investment experience, goals, financial status, and ability to bear risks.