Risk Management
Risk management is the foundation of any derivatives exchange, ensuring platform stability and the safety of traders' funds. It encompasses a set of rules, mechanisms, and protective measures designed to reduce risks and prevent disruption of the trading ecosystem during extreme market conditions.
๐ Open Interest Limits
Open interest limits are a key component of risk management in Storm. They involve setting limits on the total open interest for each trading pair relative to the exchange's storage or reserves. These limits help prevent an imbalance in open interest, which could lead to a reduction in the exchange's ability to cover trading PnL and settlements. Limiting open interest allows the exchange to maintain an acceptable level of risk for liquidity providers.
Market Type
Open Interest Limit (% of storage volume)
๐ช High Liquidity (BTC, ETH, etc.)
10%
๐ Low Liquidity (TON, PEPE, etc.)
5%
๐ Maximum Spread Between Market and Index Prices
To maintain market integrity and prevent price manipulation, exchanges often set a maximum market or index price spread. This mechanism limits the difference between the market price and the index price, ensuring that the platform's prices accurately reflect the broader market. Excessive spreads can create abnormal trading conditions, negatively impacting traders and market stability.
Additionally, Storm aims to ensure that the maximum spread between the market and index prices only occurs in the highly unlikely situation where open interest is fully utilized on one side (e.g., long positions) and not used on the other.
Market Type
Open Interest Limit (% of storage)
๐ช Cryptocurrencies
1.5%
๐ Stocks
0.5%
๐พ Commodities
0.25%
๐น Forex
0.15%
๐ฐ Funding Rate Limits
Funding rate limits are used to regulate the size of funding payments that traders can receive or pay during funding intervals. These limits prevent extreme funding rates that could encourage market manipulation or excessively high costs for traders. By setting funding limits, the exchange promotes fairness and balance in the trading environment.
Market Type
Maximum Funding Rate (24 hrs)
๐ช Cryptocurrencies
0.0625%
๐ Stocks
0.020%
๐พ Commodities
0.01%
๐น Forex
0.00625%
๐ซ Profit and Loss (PnL) Limits
Market Type
Max PnL
๐ช Cryptocurrency
900%
๐ Stocks
300%
๐พ Commodities
300%
๐น Forex
300%
โณ Slippage Tolerance
Between the initiation of a Market order and the final confirmation of the transaction by the trader, the base price may change. If the absolute price change exceeds 1% of the value set when the order was created, Storm will cancel the execution of the Market order. This event is marked with the error code SLIPPAGE_TOLERANCE in the Orders โ History section. This mechanism protects traders from unintentional order executions during sharp price movements and encourages the use of Limit orders during high volatility, which are executed only when the specified price is reached and, thus, are not subject to slippage.
๐ Maximum Price Deviation
During periods of extreme volatility or unforeseen events, such as oracle errors, trading can become unstable and lead to significant price deviations and losses for traders or liquidity providers. To mitigate this risk, exchanges implement a maximum price deviation mechanism. This function temporarily halts trading when oracle prices deviate significantly from the oracle price in the previous price update (last minute). As a result, the exchange halts trading for that pair until the deviation is resolved on its own or manually adjusted. Currently, this deviation is set at 20%.
By implementing measures such as open interest limits, maximum price spreads, funding limits, PnL limits, and maximum price deviations, Storm ensures the safety of both traders and liquidity providers, even in extreme market conditions.
๐ Effective risk management is the cornerstone of a well-functioning perpetual futures exchange.
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