Cryptocurrency exchanges have a patchy record when it comes to reliability in times of volatility; indeed, it’s become the norm for retail-focused exchanges to crash during market gyrations and corrections. LMAX Digital, a leading institutional cryptocurrency exchange, has never experienced an outage and relies upon a few core principles to ensure a robust and secure exchange platform.
Whenever markets experience significant bouts of volatility, it is unfortunately common for retail facing cryptocurrency exchanges to experience a decline in service levels, or even crash outright. We’ve heard platitudes around “lessons learned”, but our experience of running institutional FX and cryptocurrency exchanges for over a decade tells us guarding against flash crashes requires more than quick fixes. LMAX Digital has been learning and improving, building its institutional FX and cryptocurrency execution venues on the same low latency, high throughput institutional grade infrastructure to manage high-order rate spikes and mitigate risks, including a flash crash.
Precision and reliability of execution are of paramount importance to our clients and never more so than at times of volatility. At LMAX Digital, ensuring we invest in our robust technology architecture is a top priority; however, one aspect we have not ignored is the critical function automation plays in ensuring secure and timely execution. Human reaction times of seconds to minutes aren’t fast enough to deal with the sheer volume of orders placed and updates to price on exchanges in milliseconds, meaning automation is key.
Continuous investment to maintain a first-class technology infrastructure is another critical element of avoiding flash crashes and ensuring a smooth trading experience. When recent spikes in volatility have hit, it’s this robust technology that has ensured order latency on LMAX Digital did not change from a reliable base, whilst the Group’s institutional FX exchange was simultaneously processing 60,000 orders/second on what was an unexceptional trading day. We’ve set performance and capacity standards that our customers have come to expect so that their trading strategies can be carried out at any time. Those standards can absolutely not slip.
Liquidity, Liquidity, Liquidity
A prerequisite of any exchange, by definition, is ensuring appropriate levels of liquidity for clients, sufficient for large orders and high trading volumes. Whilst cryptocurrencies are still in a nascent stage of development, LMAX Digital offers access to deep institutional liquidity, whilst avoiding slippage and ensuring trades can be executed instantly.
Regulation is critical
Regulatory input is essential to supporting a healthy cryptocurrency market and for its future growth, as attention intensifies on issues including transparency, AML and investor protection. A clear framework provides clarity and certainty for the asset class and institutional investors alike. Regulation sends a message to investors that they can have faith in the integrity of the operations, technology and the ability of a business to serve clients. In essence, regulation is a crucial component of this market and serves to increase confidence and the appeal of our products and services.
That’s why LMAX Digital is regulated by the Gibraltar Financial Service Commission, a true leader and innovator in the regulation of cryptocurrencies and one of many regulators we are working with to help improve understanding of the crypto currency market.
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