✊Risk Management

Risk management is at the core of any well-functioning derivatives exchange, ensuring the stability of the platform and the safety of traders' funds. It involves a combination of rules, mechanisms, and safeguards designed to mitigate risks and prevent extreme market conditions from disrupting the trading ecosystem.

Open Interest Limits

Open interest limit is a vital component of risk management in Storm. It involves setting limits on the total open interest for each trading pair relative to the exchange's vault or reserve. These limits help prevent an imbalance in open interest that could strain the exchange's ability to cover trading PnL and settlements. By capping open interest, the exchange maintains a viable risk profile for liquidity providers.

Market Type	OI Limit (% of Vault)
Highly liquid (BTC, ETH, e.t.c)	10%
Low liquid (TON, PEPE, e.t.c)	5%

Maximum Market/Index Price Spread

To maintain market integrity and prevent price manipulation, exchanges often impose a maximum market or index price spread. This mechanism limits the difference between the market price and the index price, ensuring that prices on the platform closely track the broader market. Excessive spreads can trigger abnormal trading conditions, negatively affecting traders, and market stability.

Additionally, Storm generally aims that maximum market/index price spread is only hit in highly unlikely situation of Open Interest Limit being 100% utilized on one side (say Long), and completely non-utilized on the other.

Market Type	OI Limit (% of Vault)
Crypto	1.5%
Equity	0.5%
Commodity	0.25%
Forex	0.15%

Funding Rate Cap

Funding caps are employed to regulate the amount of funding payments that traders can receive or pay during funding intervals. These caps prevent extreme funding rates that might incentivize market manipulation or excessively high costs for traders. By imposing funding caps, the exchange fosters fairness and a balanced trading environment.

Market Type	Max Funding Rate (24h)
Crypto	0.0625%
Equity	0.020%
Commodity	0.01%
Forex	0.00625%

Profit and Loss Limit

A profit and loss (PnL) limit is a safeguard against trading winning excessive amount of money due to an extreme market conditions or oracle bug. It sets a threshold beyond which a trader's PnL cannot raise. If a trader's PnL breaches this limit, the keeper bots of Storm can immediately close position with trader receiving a full amount of positive PnL they won.

Market Type	Max PnL
Crypto	300%
Equity	300%
Commodity	300%
Forex	300%

Maximum Price Deviation

In moments of extreme volatility or unforeseen events such as oracle bugs, trading can become erratic and result in substantial price deviations and traders or liquidity provider losses. To mitigate this risk, exchanges implement a maximum price deviation mechanism. This feature temporarily halts trading when oracle prices deviate significantly from the oracle price in previous price update (last minute). This causes an exchange to stop trading in this pair until deviation resolves itself, or manual action is taken. This currently sets at 20% deviation.

Effective risk management is the cornerstone of a well-functioning perpetual futures exchange. By implementing measures such as open interest caps, maximum price spreads, funding caps, PnL limits, and maximum price deviation safeguards, Storm ensures safety of both traders and liquidity providers even in extreme market conditions.