Bitcoin Forum

Leveraged financial products have long been used by brokers in order to offer traders massive exposure to markets for a relatively small percentage of the total position.

I'm sure many of us have noticed the 'Margin trading (coming soon)' on Mt Gox, and I wonder what the community thinks to trading BTC on margin.

• Will Mt Gox be able to implement such a product with the price of BTC fluctuating as it is?
• Will (or should) margin accounts be different to normal trading accounts and will margin traders have to have more vetting & maintain higher collateral?
• Will margin trading destabilise the market even more? Is there enough depth? Will leverage ultimately decrease market depth?
• Day trading BTC might become more attractive, but do the advantages of trading BTC outweigh the advantages of, say, trading forex with SBs and CFDs?

Well obviously giving someone 2,10,20 times their account value is asking for trouble, the very first few will be able to swing the price easily. BUT after a few hours there will be other buyers that will put up a larger wall of these offers/bids on margin, so it should stabilize quickly and then what you have is a larger volume wall, that should in effect provide liquidity a bit better without such large swings.

But eh, we will see. It just means people will make-or-break faster and harder instead of slowly dying off from price changes before they can sell out.

Margin trading wouldn't be good for the exchanges because of two reasons:

1 - Market is easily manipulated. Someone could buy several deep in the money calls, sell a large number of Bitcoins ride the down slide and then exorcize the option. Netting them a hearty profit when the market eventually recovers.

2 - Exchanges would need to implement the same safeguards as every other brokerage house when granting people margin credit and option level 1+ trading. Otherwise, how would the exchange collect if someone got themselves into a call situation?

The big benefit for Bitcoin is that there's a sense of anonymity with it. For the most part, the exchanges follow this belief by not doing direct ACH transactions or collecting any personal information beyond name/email.

Now, don't get me wrong. For Bitcoin to be taken seriously by the trading community at large, exchanges will eventually have to mature to that point. I just don't think the current small Bitcoin community is ready.

Margin trading was to be a feature already possible at HelloBitcoin.com though being based out of the U.S. (they claim, though I've seen no proof of this) they are required to impose a minimum balance restriction of $2K USD.  Their order book is pretty thin yet though so even with a margined account you couldn't do much activity.  But it is possible today, apparently.

- http://www.hellobitcoin.com