ETH-USD Trading Update #3 — What Happened and What’s Next?
At 12:30pm PT on June 21, 2017 a multimillion dollar market sell was placed on the GDAX ETH-USD order book that resulted in approximately 30% book slippage. As a result, several hundred stop loss orders and margin calls were automatically executed, causing ETH to momentarily trade as low as $0.10.
Since our last update, we have credited the ETH-USD accounts of all customers directly affected by this event. We have also completed a thorough investigation into the events on June 21 and begun exploring options to help mitigate the likelihood of a similar event occurring in the future.
What happened?
GDAX operates the largest ETH-USD market in the world. On June 21, prior to the market event, over $90 million dollars of ETH had been exchanged with no downtime or site reliability issues. All systems were operating as expected.
At 12:30pm PT, a $12.5 million dollar market sell order was placed for 39,300 ETH on the ETH-USD book. This order removed significant liquidity from the order book, resulting in a book slippage of 29.4% and the price of ETH immediately moving from $317.81 to $224.48.
As a result of the change in price, a series of stop market orders and margin calls were automatically executed by the matching engine. These orders removed additional liquidity from the order book and triggered further market sell orders, resulting in the price of ETH momentarily trading as low as $0.10. This series of cascading market orders occurred as a single atomic operation of the matching engine, completing in less than 45 milliseconds (see video below).
Programmatic traders responded to market conditions and automatically placed new buy orders on the ETH-USD book. This resulted in trading returning to the $300 level within 10 seconds of the initial market sell order.
Over the following 15 minutes, GDAX site traffic and customer activity increased by 450%. This resulted in intermittent login issues and API latency for some customers. As a precautionary measure, we disabled new margin funding and trading on the ETH-USD book at 1:10pm PT to investigate the market event. Trading resumed at 4:05pm PT once we confirmed the matching engine operated as designed.
What’s next?
Over the course of the last week, we have explored options to improve GDAX and re-enable access to margin trading. We believe the measures we are considering will help ensure we operate a fair and orderly market and support the long term growth of this developing asset class.
1. Trading Safeguards
- Pre-trade and post-trade safeguards can bring added stability to markets. We are exploring how protections such as maximum market order sizes and exchange circuit breakers may reduce the likelihood of rapid price movements.
2. Margin Trading
- Margin trading is designed to amplify the effect of market movements. We are considering how margin calls and liquidation strategies can be used to manage the risk of loss while preserving the benefits of margin trading.
3. Market Depth
- Market makers facilitate trading – narrowing spreads, decreasing volatility, and stabilizing markets. We are investigating how fee structures can incentivize market makers to improve liquidity and increase market depth on GDAX.
4. Uptime and Availability
- Market participants rely on uninterrupted access to market data and trade execution. We are investing heavily in our platform infrastructure to ensure GDAX continues to meet the expectations of our customers.
We are committed to becoming one of the world’s leading exchanges, and these improvements will help us achieve our goal of being the most trusted marketplace. As the digital asset market continues to develop, we are focused on supporting the world’s largest institutions and professional traders. If you are interested in joining us, check out our careers page.
ETH-USD Trading Update #3 was originally published in The GDAX Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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ETH-USD Trading Update #3 — What Happened and What’s Next?
At 12:30pm PT on June 21, 2017 a multimillion dollar market sell was placed on the GDAX ETH-USD order book that resulted in approximately 30% book slippage. As a result, several hundred stop loss orders and margin calls were automatically executed, causing ETH to momentarily trade as low as $0.10.
Since our last update, we have credited the ETH-USD accounts of all customers directly affected by this event. We have also completed a thorough investigation into the events on June 21 and begun exploring options to help mitigate the likelihood of a similar event occurring in the future.
What happened?
GDAX operates the largest ETH-USD market in the world. On June 21, prior to the market event, over $90 million dollars of ETH had been exchanged with no downtime or site reliability issues. All systems were operating as expected.
At 12:30pm PT, a $12.5 million dollar market sell order was placed for 39,300 ETH on the ETH-USD book. This order removed significant liquidity from the order book, resulting in a book slippage of 29.4% and the price of ETH immediately moving from $317.81 to $224.48.
As a result of the change in price, a series of stop market orders and margin calls were automatically executed by the matching engine. These orders removed additional liquidity from the order book and triggered further market sell orders, resulting in the price of ETH momentarily trading as low as $0.10. This series of cascading market orders occurred as a single atomic operation of the matching engine, completing in less than 45 milliseconds (see video below).
Programmatic traders responded to market conditions and automatically placed new buy orders on the ETH-USD book. This resulted in trading returning to the $300 level within 10 seconds of the initial market sell order.
Over the following 15 minutes, GDAX site traffic and customer activity increased by 450%. This resulted in intermittent login issues and API latency for some customers. As a precautionary measure, we disabled new margin funding and trading on the ETH-USD book at 1:10pm PT to investigate the market event. Trading resumed at 4:05pm PT once we confirmed the matching engine operated as designed.
What’s next?
Over the course of the last week, we have explored options to improve GDAX and re-enable access to margin trading. We believe the measures we are considering will help ensure we operate a fair and orderly market and support the long term growth of this developing asset class.
1. Trading Safeguards
- Pre-trade and post-trade safeguards can bring added stability to markets. We are exploring how protections such as maximum market order sizes and exchange circuit breakers may reduce the likelihood of rapid price movements.
2. Margin Trading
- Margin trading is designed to amplify the effect of market movements. We are considering how margin calls and liquidation strategies can be used to manage the risk of loss while preserving the benefits of margin trading.
3. Market Depth
- Market makers facilitate trading – narrowing spreads, decreasing volatility, and stabilizing markets. We are investigating how fee structures can incentivize market makers to improve liquidity and increase market depth on GDAX.
4. Uptime and Availability
- Market participants rely on uninterrupted access to market data and trade execution. We are investing heavily in our platform infrastructure to ensure GDAX continues to meet the expectations of our customers.
We are committed to becoming one of the world’s leading exchanges, and these improvements will help us achieve our goal of being the most trusted marketplace. As the digital asset market continues to develop, we are focused on supporting the world’s largest institutions and professional traders. If you are interested in joining us, check out our careers page.
ETH-USD Trading Update #3 was originally published in The GDAX Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.