In the cryptocurrency market, “pin” is a common term that refers to the phenomenon where the price of a cryptocurrency rises or falls rapidly for a short period of time, and then quickly returns to normal levels. This article will take you to understand the causes of pins, their impact on the market, etc.
Cause of pin generation
There are many reasons for the "pin insertion" phenomenon, one of which is insufficient transaction depth, which may lead to the occurrence of pin insertion. In addition, the exchange mechanism may not be sound enough, which may also be the culprit of the pin insertion. Even sometimes, artificial price manipulation may lead to the occurrence of pin insertion.
Market impact of inserting needles
1. Spot market
The phenomenon of pin insertion usually has a small impact on the spot market, but because the price fluctuations caused by pin insertion are rapidly changing and humans cannot respond in a timely manner, it will not have a huge impact on market prices. The pin insertion phenomenon generally occurs within the exchange, but the pin insertion situation will be different in different exchanges at the same time.
2. Contract margin account
For trading accounts using contract leverage, the situation can be very different. Contract trading accounts usually hold positions, and sharp price fluctuations may trigger a forced liquidation mechanism. Many exchanges will use "venue transaction price" to assess position risks. Once the pin insertion phenomenon occurs, investors' accounts may be forced to close their positions, resulting in huge losses.
Preventive measures for pin insertion phenomenon
1. Reference prices from multiple exchanges
Introduce the prices of multiple exchanges as a reference in contract transactions, and calculate them through weighted average and other methods to more accurately reflect the overall market price trend and reduce abnormal fluctuations caused by pin insertion. .
2. Application fault tolerance mechanism
The exchange applies a fault-tolerant mechanism to automatically exclude abnormal exchange prices, identify exchanges with abnormal prices, and eliminate them when calculating the reference price to reduce the impact of insertion on contract transactions. .
3. Optimize the forced liquidation mechanism
The exchange optimizes the forced liquidation mechanism for contract transactions, warns holding accounts in advance, and reduces unexpected losses caused by pin insertion.
4. Technical monitoring and anti-cheating measures
The exchange has upgraded its monitoring technology and monitoring system to detect abnormal trading behaviors, promptly discover malicious manipulation behaviors, and reduce the risk of pin insertion.
Although the "pin insertion" phenomenon is full of mystery, the adverse impact on investors can be reduced through appropriate preventive measures. When trading cryptocurrency contracts, the rational application of external index prices is a key protection mechanism that helps avoid forced liquidations caused by pin insertion, thereby reducing investor risk.