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Author Topic: Someone help us understand the economics of Margin trading, lending and ..  (Read 25 times)
buddhasource
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July 04, 2018, 10:47:27 AM
 #1

Hello guys,

I would like to learn about the economics of Margin trading, need for the lending platform ( like Bitfinex & Poloniex ) and liquidation.
First the working of all this plus I have some specific questions.

  • 1. Is lending platform really important for Margin trading? How are they related?
  • 2. In crypto world, if a margin is given for say BTC example 3x of your BTC. How do exchanges handle liquidation?
  • 3. Is there a time restriction anywhere? to give back the BTC?
  • 4. Difference between Margin and leverage trading?

Even if you can point me to some good articles that summarize the working that would be great.
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charlotte04
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July 04, 2018, 11:30:45 AM
 #2

Hello guys,

I would like to learn about the economics of Margin trading, need for the lending platform ( like Bitfinex & Poloniex ) and liquidation.
First the working of all this plus I have some specific questions.

  • 1. Is lending platform really important for Margin trading? How are they related?
  • 2. In crypto world, if a margin is given for say BTC example 3x of your BTC. How do exchanges handle liquidation?
  • 3. Is there a time restriction anywhere? to give back the BTC?
  • 4. Difference between Margin and leverage trading?

Even if you can point me to some good articles that summarize the working that would be great.

Firstly, you would not try to go into margin trading if you still don't know anything about trading and its basics. It is still best just to trade a normal trading style.
pawel7777
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July 04, 2018, 12:01:12 PM
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    • 1. Is lending platform really important for Margin trading? How are they related?

    Nope. It depends on the model. BitMex (most popular BTC margin trading platform) don't have lending platform. They just match long and short calls.
    Even in Polo/Bitfinex model, they could do without lending platform, simply by using their own funds, but they chose the model when one group of users (lenders) provide funds to other group (traders).

    Quote
    • 2. In crypto world, if a margin is given for say BTC example 3x of your BTC. How do exchanges handle liquidation?

    You have to have your own funds (deposit) to be able to margin trade. Liquidation will happen when your position generates a loss equal to your deposit. Simplified example:
    You place 1 btc (your own funds) order with x10 margin, total 10 btc, your position approaches 10% loss (so 1 btc) - you get liquidated and you lose that 1 btc (not 10 btc). Lender's funds (9 btc) are not affected.

    Quote
    • 3. Is there a time restriction anywhere? to give back the BTC?

    Depends on a platform (i.e. Nexybit have Futures with settlement dates). Poloniex doesn't have 'expiry' date. You can keep your position open for as long as you want, until it gets eaten by the fees. Lenders put time restriction on their loans though (they can set anything from 2 - 90 days iirc).
    Example: You place a margin order and you get funded by my 2-day loan, after 2 days funds are returned to me (with earned interest) and you automatically borrow from someone else.
     
    Quote
    • 4. Difference between Margin and leverage trading?

    Both are used as synonyms and are interconnected.

    Quote
    Even if you can point me to some good articles that summarize the working that would be great.

    Most platforms have guides with explanation of how it works. Just google the one you're interested in.


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