Traditionally, circuit breakers are used in trading markets to curb extreme and unusual price swings, and that's exactly what they are used for at Liquid.
We use circuit breakers to monitor every trading pair for unusual price movements. If an asset’s price unnaturally moves a significant percentage up or down in a short timeframe, a circuit breaker will trigger, temporarily halting trading for the affected market until it can be manually restarted.
Why are circuit breakers needed?
We use circuit breaker to prevent market manipulation and protect our traders from large price swings that might adversely impact them. While it can be annoying to traders to see any kind of suspension of activity, in such cases where price changes dramatically, it’s necessary to avoid market crashes and shield traders’ assets.
What else should I know about circuit breakers?
Circuit breakers cannot halt the execution of a single order. When an individual traders places a very large limit order far from market price, or a very large market order, the circuit breaker will only catch the price change after the order is executed in its entirety. Only if there are no orders in the order book that meet the criteria of the order would the order be prevented from being entirely filled.
Recommended articles: