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Author Topic: Margin Trading  (Read 4121 times)
mtgox
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November 03, 2010, 07:48:56 PM
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Would anyone be interested in Trading BTC/USD on margin? Like how trading is done on most forex sites?

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OneFixt
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November 03, 2010, 07:52:07 PM
 #2

I'd be very interested.

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ribuck
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November 03, 2010, 07:54:29 PM
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Margin trading is not for me, but it would have been very interesting over the past 12 hours with MtGox trades swinging repeatedly up and down, and touching $0.125 and $0.275.
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November 03, 2010, 08:16:40 PM
 #4

how exactly would the margin be secured?

If I have $1000 cash in account and lose $1500, how will the other side be compensated? Or if I have 1000 btc and lose 2000 btc, where will the other 1000 btc come from?

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November 03, 2010, 08:19:48 PM
 #5

how exactly would the margin be secured?

If I have $1000 cash in account and lose $1500, how will the other side be compensated? Or if I have 1000 btc and lose 2000 btc, where will the other 1000 btc come from?

I wonder also. My thinking is that "margin trading" means taking a loan from the house. Is this not the case? Maybe options make more sense for levered trading?

I guess some brokers will automatically liquidate your positions when you run out, but that's only going to work if there is lots of liquidity even after a large price move.

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November 03, 2010, 08:39:59 PM
 #6

No, not yet.  Margin trading makes it very volatile.  Maybe when the bitcoin is more stable.
mtgox
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November 03, 2010, 08:45:38 PM
 #7

It isn't exactly a loan. It works basically like this:
http://www.babypips.com/school/lots-leverage-and-profit-and-loss.html
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Typically the broker will require a trade deposit, also known as "account margin" or "initial margin." Once you have deposited your money you will then be able to trade.

For example, if the allowed leverage is 100:1 (or 1% of position required), and you wanted to trade a position worth $100,000, but you only have $5,000 in your account. No problem as your broker would set aside $1,000 as down payment, or the "margin," and let you "borrow" the rest. Of course, any losses or gains will be deducted or added to the remaining cash balance in your account.

If your margin balance drops too low all your positions are liquidated. It basically allows you to increase your return or your loss from trading.
It would be pretty risky with how volatile the current market is but some people might be into it.


kiba
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November 03, 2010, 08:50:12 PM
 #8

So is this your new business model?

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November 03, 2010, 09:18:34 PM
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I don't get how you'll be able to hold people accountable for negative balances

mtgox
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November 03, 2010, 09:41:36 PM
 #10

They never get a negative balance. Their account would be margin called (positions liquidated) before that.

ribuck
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November 03, 2010, 09:56:19 PM
 #11

Suppose you buy $100,000 worth of bitcoins on a margin of $1000. The moment the value of those bitcoins drops to $99,000, the exchange sells them. The proceeds of that sale, plus your $1000, gives the exchange its $100,000 back.
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November 03, 2010, 09:58:55 PM
 #12

Suppose you buy $100,000 worth of bitcoins on a margin of $1000. The moment the value of those bitcoins drops to $99,000, the exchange sells them. The proceeds of that sale, plus your $1000, gives the exchange its $100,000 back.
Ok I see, so it only makes sense if you re-sell them shortly after, amirite ?

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November 03, 2010, 10:05:21 PM
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Suppose you buy $100,000 worth of bitcoins on a margin of $1000. The moment the value of those bitcoins drops to $99,000, the exchange sells them. The proceeds of that sale, plus your $1000, gives the exchange its $100,000 back.

What if there is no bid there? Liquidated a little below and billed the difference or forgiven?

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ribuck
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November 03, 2010, 10:13:18 PM
 #14

Billed the difference and pursued outside the exchange. Certainly not forgiven.

Quote from: mtgox
If your margin balance drops too low all your positions are liquidated
This suggests to me that MtGox would liquidate before the margin is exhausted (i.e. when it drops to some percentage) which gives the exchange some leeway for a further drop in price before the liquidation can be carried out.
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November 03, 2010, 10:14:50 PM
 #15

...so it only makes sense if you re-sell them shortly after, amirite ?
Margin trading only makes sense if the price is going to rise. In that case there's no hurry to sell.
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November 03, 2010, 10:18:59 PM
 #16

I see.
Thanks for the answers !

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November 03, 2010, 10:22:37 PM
 #17

Billed the difference and pursued outside the exchange. Certainly not forgiven.

Quote from: mtgox
If your margin balance drops too low all your positions are liquidated
This suggests to me that MtGox would liquidate before the margin is exhausted (i.e. when it drops to some percentage) which gives the exchange some leeway for a further drop in price before the liquidation can be carried out.

I thought so, but that would kind of change the nature of mtgox. He hasn't really seemed into IDing people and such. I guess I assumed he didn't want to and was wondering if there was some secure way of using margin without tracking people down. But maybe he does want to do that.

Options trading could be foolproof in this sense, right?

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mtgox
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November 03, 2010, 10:40:22 PM
 #18

I wouldn't have to ID you.
Say:
You deposit X BTC.
You open a position for Y BTC/USD. 
BTC/USD goes down a little so your position is only worth (Y-X).
I liquidate your position.
Now mtgox has (Y-X) + X which = Y which is the amount of the loan.

The exchange hasn't lost anything so I don't need to know who you are.

FreeMoney
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November 03, 2010, 10:49:30 PM
 #19

I wouldn't have to ID you.
Say:
You deposit X BTC.
You open a position for Y BTC/USD. 
BTC/USD goes down a little so your position is only worth (Y-X).
I liquidate your position.
Now mtgox has (Y-X) + X which = Y which is the amount of the loan.

The exchange hasn't lost anything so I don't need to know who you are.


I get how it works when there enough bids at the right prices. But how is this guaranteed?

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jgarzik
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November 04, 2010, 01:20:21 AM
 #20

Would anyone be interested in Trading BTC/USD on margin? Like how trading is done on most forex sites?

Short selling would be nice.

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