Given the recent Bitcoin price swings, the digital currency’ s volatility is once again becoming a topic of heavy debate as to why people should or should not get involved with BTC. Several companies are trying to protect their users from this volatility in one way or another. UMEX, a prominent Bitcoin exchange platform currently in its beta stage, has implemented to a feature which will switch the Bitcoin trading session to an auction-esque system.
Protection Against Bitcoin Price Volatility
Trading on a cryptocurrency exchange platform without volatility as we have seen over the past few months is risky enough as is. Even though users are always subject to price swings of any of the coins involved, including fiat currency, UMEX wants to reduce the risk when it comes to trading Bitcoin. Especially considering the rather negative press Bitcoin is receiving as of late.
Selling a large amount of digital currency, in this example Bitcoin, can lead to an avalanche causing a massive price swing. Most platforms protect their users against these types of Bitcoin price swings by activating a stop-order mechanism. However, stop-orders are not necessarily the best or only solution to protect traders.
UMEX developers have come up with a special solution to circumvent these issues. If the Bitcoin price would pass a certain value threshold, regular trading is switched off and replaced with an auction interface. The implementation of auction mode allows for smoothing out technical slippage during the mass activation of stop-orders. This will also give traders ample time to correct their trading orders.
It has to be said however that UMEX’s Auction Mode is a trading mode in its own right, which is also called “call auction” or “discrete auction”. Customer orders do not match when there is a “counter order” at the best price on the market, but rather labels all open orders as “active” as they wait for completion of the auction.
Once an “auction” order completes, every open order is matched at a calculated price (the “discrete” auction price). Orders will only be matched if their price is not lower than the “discrete auction price in the first place. All other orders which do are lower than the discrete auction price will become ordinary quotations with a filling time equal to the time of arrival in the “auction mode”.