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Author Topic: Margin trading & BTC - Good or bad?  (Read 682 times)
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ignoring the idiots since 2009

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September 04, 2011, 10:29:46 AM

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?

Having read through a lot of it, I recommend you take almost all of what you read on this forum in jest.
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September 04, 2011, 11:28:47 AM

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.
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September 04, 2011, 02:22:50 PM

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.
Stephen Gornick
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September 05, 2011, 02:58:45 AM

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.

Margin trading was to be a feature already possible at 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.

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