An “enormous” losing bet on bitcoin last week left one futures trader unable to cover the loss and other traders on a Hong Kong-based exchange to foot the bill.
The gamble made on OKEx, one of the world’s largest cryptocurrency exchanges, was worth about $416 million, according to a company statement and the price of bitcoin futures Friday.
Because of the sheer size of the order and bitcoin’s price slump the exchange said it couldn’t cover the loss. As a result, it implemented a clawback policy or what it called a “societal risk management mechanism.” Users with a net profit will have a portion of their earnings taken back to cover the difference between the liquidated price and the settled price.
The trader, identified only as “ID 2051247,” initiated what the exchange called “an unusually large long position order” of more than 4 million contracts on July 31. The exchange said it immediately contacted the client and requested “several times to partially close the positions to reduce the overall market risks.”
“However, the client refused to cooperate, which lead to our decision of freezing the client’s account to prevent further positions increasing,” OKEx said on its website. “Shortly after this preemptive action, unfortunately, the BTC price tumbled, causing the liquidation of the account.”