On: Telling it like it is

[joosters]

I can't find Matt Levine's article about it (he explains it very well). The problem is that often you don't want positions to be quickly liquidated when a margin call comes. The current system of allowing traders time to post more collateral has risks (i.e. they might not pay), but the downside of automated liquidation is:

1) cascading liquidations as forced selling pushes prices down and triggers yet more forced selling

2) not every person is going to be able to monitor their positions 24/7, so they will get wiped out as they sleep (e.g. a farmer hedging their crop wakes up to find they lost all their money because the market temporarily dipped in price overnight)

[pointsnfigures1 → joosters]

Clearing is very complex to answer inline in this comment.

It is not only collecting margin, settlement, and paying/collecting from accounts. It's also risk management. For example, CME and ICE have created proprietary algorithms that calculate the level of risk in a market based on open positions, daily liquidity, width of bid/ask spreads, and daily market movement of the future and underlying cash prices. SBF was basically talking out of his ass when he wanted every 30 seconds. In a volatile market, that would break the market. Price discovery would cease. Bid/Ask spreads would be super wide. Currently, there is a role for brokers to play by qualifying customers. I will tell you 99% of the VCs I interacted with and almost 100% of the entrepreneurs didn't truly understand clearing. Check out Bitnomial.com if you want to see how it is done in a crypto market the way it should be done. They went through at least a three year process at the CFTC to become a designated contract market in the US where lots of crypto exchanges have gone to Bermuda simply to avoid regulation.