A venue is infrastructure that goes down under load

Graduate · enrolled learners

This lesson opens with BitMEX outage, 12 to 13 March 2020.

What happened

As the price of Bitcoin fell by nearly half in a single day, the crypto derivatives exchange BitMEX went offline for about 25 minutes at the worst possible moment, which the exchange attributed to a hardware issue and a denial-of-service attack. While BitMEX was down, its cascade of forced liquidations stopped, and traders and their bots could not reach the venue to reduce, hedge, or close positions exactly when it mattered most, so anyone depending on that venue was frozen out precisely during the move they most needed to manage. Some later argued the outage inadvertently halted a liquidation spiral that might otherwise have driven the price toward zero. Nothing was stolen and no account was singled out; the venue itself, the thing every strategy on it assumed would be reachable, became unreachable under the load of the crash. The traders had their strategies and their capital; what they lost, for those minutes, was the venue on which any of it could be used.

The decision point

A trading venue is infrastructure, and like all infrastructure it can fail, going unreachable for minutes or longer, and it tends to do so under exactly the heavy load a strategy most wants to trade, so a system that assumes its venue is always reachable is assuming reliability at the moment reliability is least likely. The BitMEX outage is the case: at the worst point of a fifty percent crash the exchange went offline for about 25 minutes, and every strategy depending on it was frozen out of the market during the move it most needed to act on. This is the venue-side counterpart to the data-feed lessons: it is not enough for your data to be good if the place you must send orders has gone dark, because an unreachable venue means your decisions cannot become trades. The load that makes a venue fail is not random; it is the volume spike of a crash or a rally, the same conditions that make a strategy want to trade, so the correlation is cruel: the venue is most likely to be down when you most need it up. So the discipline is to treat every venue a system depends on as something that can and will become unreachable, especially under stress, to define what the system does when it cannot reach a venue, holding, protecting open positions, not assuming orders sent into the void arrived, and where the stakes justify it, to avoid depending on a single venue that can take the whole strategy offline when it fails. The BitMEX outage is what an unreachable venue looks like at the worst moment, and its lesson is that a strategy is only as tradeable as the venue it runs on is reachable, which under stress is not something to take for granted.

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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