Socialized clawback at the crypto-exchange? Time to consider a different way of trading - 4 advantages of trading cryptos with a broker


  • A crypto-exchange took money from traders to compensate another.
  • Exchanges have had a serious of issues, and this is not the first one. 
  • Cryptocurrencies can be traded in a different manner. 

A trader at OKEx, a crypto-exchange, made a big leveraged bet on Bitcoin. It had a notional value of no less than $416 million. The company saw that, called him, and asked him to partially close the position. When he refused, and they decided to freeze his account to prevent him from enlarging the risk. However, the price of Bitcoin tumbled, causing a liquidation of the account.

But it did not end there. 

The toxic mix of a significant position, enhanced leverage, and a sharp market movement meant that OKEx needed to cover losses beyond the client's account. It then used its "socialized clawback" protocol. Other futures trades were forced to give up 18% of their profits.

So, every crypto-trader that had a profit but did not realize it lost quite a bit of money. This is comparable to a bank that asks its clients to help it when a big loan went bad. Needless to say, many were angered. 

This is not the first "socialized clawback" and not the first issue with crypto-exchanges. Never-ending "maintenance modes," hacks, market manipulation, and outright bankruptcies have haunted cryptocurrency exchanges and their clients since Mt. Gox several years ago and until today.

Looking beyond crypto-exchanges

Maybe there is a better way.

To trade cryptocurrencies, one does not need to trade at a crypto-exchange. Brokers that specialize in forex have also dipped their feet into digital coins and have learned quite quickly. 

Here are some of the advantages of trading with a broker:

1) Costs

Exchanges charge various fees for trading, withdrawing, passing your digital money to another exchange and hefty fees for depositing using a credit card. Forex brokers also make money, but this is done via spreads between the buying and the selling price. 

The long-running competition between brokers has lowered these spreads. Moreover, these spreads are easily understood, and there are fewer surprises. As always, it is important to make comparisons, but at least calculating the cost of trading with a broker is easier.

2) Ease of use

It begins with the sign-up processes which are smooth with brokers and have been refined for years. Onboarding at cryptocurrency exchanges can be like jumping fire hoops. The rigorous documentation that is needed makes everything quite cumbersome. Also, you need to create a wallet. If the exchange does accept fiat currency, you first need to obtain Bitcoin or Ethereum elsewhere. 

Trading is more comfortable with a broker. The charts and technical tools are sophisticated and allow precise calculations whether it is the industry-standard Meta-Trader or a proprietary platform developed by the broker. Many exchanges offer a more limited experience. 

3) The ability to go short

All crypto-boats rose with the 2017 tide, but 2018 is different. Many cryptocurrencies suffered losses. With a broker, you trade against the underlying asset by going short. Going short means first selling at a high price and then buying at a lower price. So, a profit can be made when the cryptocurrency is falling. 

By buying the cryptocurrencies and holding them in a wallet, going short is impossible. 

4) Security

We have now come full circle to the primary motivation to look elsewhere. Sure, some forex brokers are better than others, and the worst ones go out of business. However, the better ones are regulated. If you have an issue with a regulated broker, you can complain to the regulator.

Those that suffered from the  "social clawback" have no one to go to. And it will not have happened in the first place, as the broker appreciates the regulatory stamp and fears the regulator. 

 


Looking for a CFD provider? Time to Trade CFDs on Cryptos with Plus500

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Cryptos feed

Latest Crypto News


Latest Crypto News & Analysis

Editors’ Picks

Shiba Inu price looks south towards $0.0000060 as technicals favor SHIB bears

Amidst an underlying downbeat mood across the crypto market, Shiba Inu extends the bearish momentum into the third straight day on Sunday. The tide is seen turning in favor of SHIB bears once again, as well depicted by Shiba Inu’s daily technical graph, with the market licking its wounds from the China-led blow. Upside remains elusive with 61.8% Fib offering strong resistance.

More Shiba Inu news

Cardano price eyes a drop towards $1.85

Cardano price is once again on the slippery slope this Sunday, kicking off a new week on the wrong footing, as ADA bulls lack follow-through recovery momentum. ADA sellers target 100-DMA at $1.85 on a firm break below $2.

More Cardano News

Ethereum bears contemplate a drop to $2450

ETH price is building up downside pressure while clinging to the 200-SMA support. RSI remains flat below the midline, keeping the sellers cheerful. A drop towards $2450 remains in the offing if the 200-SMA caves in.

More Ethereum News

Polkadot price at make-or-break point as DOT awaits a range breakout

Polkadot price spots a potential symmetric triangle pattern on the 1D chart. RSI stands neutral at 50.00, suggesting a lack of clear directional bias. 21-DMA offers immediate resistance, 50-DMA guards the downside.

More Polkadot News

BEST CRYPTO BROKERS/EXCHANGES



Bitcoin Weekly Forecast: Markets revert to mean, but BTC price remains indecisive

Bitcoin price shows considerable strength after springing from the recent crashes. Still, it is uncertain whether the current bullish impulse will morph into a new uptrend or lead to a more profound decline.

Read the weekly forecast

BTC

ETH

XRP