A stop-loss order requires the security to be sold when the price hits a certain threshold. Margin-funding refers to trading with borrowed money. Liquidations can occur when margin-funded positions are closed out automatically to prevent further losses. The combination of stop-loss orders and margin liquidations contributed to the sharp downward spiral, which was followed by a sharp rebound.
White said the GDAX decided to temporarily halt trading of ETH-USD in response to the price movement, then restored trading in accordance with the exchange’s “downtime process” once it was confirmed that all systems were operating correctly.
White said the exchange’s initial investigations showed “no indication of wrongdoing or account takeovers” but acknowledged that such an event “can be frustrating for our customers.”
White said the exchange’s matching engine “operated as intended throughout this event” and that “trading with advanced features like margin always carries inherent risk.”
And don’t look for the trades to be reversed.
“We are continuing to conduct a thorough investigation and will keep customers updated with any resulting actions. With that in mind, it is important to note that these trades are final in accordance with our GDAX Trading Rules (Section 3.1),” White wrote. “Honoring properly executed orders is critical to maintaining the integrity of an exchange.”