[zdkl]

"Under extreme market circumstances Deribit could decide to partially or entirely close winning positions to be able to close loosing positions. This could only occur under extreme circumstances, for example when the market moves more than 10% in a 12 hour time frame."

Wait what? I've seen way more than 10%/day volatility on *coin/USD markets often enough. Has anyone else read through the 'tos'?

https://www.deribit.com/docs/terms-of-service-and-privacy-po...

[tcoppi]

When you trade derivatives like this, your main risk is counterparty risk. Deribit, with things like this and the documentation used to describe their futures and options offerings, does not inspire trust in them as a counterparty.

[Animats]

They're trying hard not to take on counterparty risk. But the gimmicks they use to avoid it make their options less valuable.

Unlike a cash exchange, a derivatives exchange with "leverage" (which means they loan customers money) takes on financial risk. They cannot play in this game unless they have enough financial strength to pay off when they lose. And, no, they don't get to use the customer's deposits. Those belong to the customer.

With "leverage", it's quite possible for a customer to have a negative balance. Then the broker/exchange has to collect from the customer, or cover the loss.

They're trying to escape this situation by using an "auto liquidation" approach, which means that when a customer balance approaches zero, they start closing out customer positions. This allows customers to game the system. Take a position, leverage it, and keep a near-zero balance. If the customer wins, they collect; if the customer loses, Deribit closes out the contract. This adds a special kind of counterparty risk when buying a contract - even if you win, your position may be closed out in favor of the counterparty before you can gain anything.

Deribit makes their own private price for Bitcoin, which is a 30 minute moving average. This makes the "auto liquidation" thing workable. If the price changed too fast, and especially if it changed discontinously, auto liquidation would break. But this creates an arbitrage situation between Deribit and everybody else.

From the terms: "In no event will Deribit, or its suppliers or licensors, be liable ... for any amounts that exceed the fees paid by you to Deribit under this agreement during the twelve (12) month period prior to the cause of action." Financial services do not work like that. They have much larger obligations to their customers.