Recently, many beginners have been asking what “pinning” is. This is indeed a concept that you must understand in derivatives trading. In simple terms, pinning is when the price suddenly spikes up or drops sharply within a short period of time, and then quickly returns to its original level. It looks like someone poked the candlestick chart—so it’s called “pinning.”

Why does this happen? There are mainly a few reasons. First, it’s especially easy for pinning to occur when order book depth is insufficient and liquidity is lacking. Another reason is that the exchange’s mechanism design is not robust enough; at times, it may even involve price manipulation. Anyway, as long as there are loopholes, pinning is likely to happen.

For spot trading, the impact is actually limited, because the price moves too fast for people to react—so the real effect on market conditions is constrained. But derivatives are different. That’s where pinning is truly the “killer move.” Derivatives traders hold positions, and once the price swings sharply, the forced liquidation mechanism gets triggered. Many exchanges use the “venue transaction price” to assess risk. When pinning occurs, your account may get liquidated in an instant, leading to severe losses.

That’s why exchanges have been working to deal with pinning in recent years. A more reliable approach is to introduce prices from multiple exchanges as references and calculate a more realistic market price through weighted averages, which can greatly reduce the impact of abnormal volatility. Another measure is to set up a fault-tolerance mechanism to automatically identify and exclude those abnormal prices, leaving nowhere for pinning to hide.

Optimizing the forced liquidation mechanism is also crucial: instead of liquidating immediately, give warning alerts to accounts with open positions in advance. Combined with upgraded monitoring technology that tracks abnormal trading activity in real time and detects malicious manipulation promptly, the risk of pinning can be significantly reduced.

Although pinning may look mysterious, as long as exchanges put preventive measures in place—especially by reasonably using external index prices as references—you can effectively protect yourself from being liquidated. This is truly an indispensable protective mechanism for derivatives traders.