BTS SHORTS IN MARGINS

in BitShares5 months ago

The bitshares DEX allows a user to enter a margin trade by borrowing the Smartcoin assets CNY and USD, using bitshares as collateral. “There are others, but my focus will be on this two as they are the mostly traded pairs on the DEX”…. This means that a trader with bitshares, can increase his short position without selling, his valuable BTS assets, but there’s a draw back and that is MCR, the MCR is the price at which a users margin is called and ultimately sold in the market in order to cover his initial short position. Most MCRs are pegged at 1.5-1.75 i.e 150% – 175%, the bad thing about MCR is the MSSR, which is the short squeeze ratio, the percentage fee that is used to punish defaulters (CNY MSSR = 1.05 or 5%)…

Thus if your CNY margin is called, you will loose roughly 5% of whatever is left of your collateral as well as other market fees involved in the sale. This looks bad from a borrower’s perspective, but only if the borrowed CNY was poorly utilized.

Most margin traders on the DEX usually go short to buy more bitshares, this wrong and that’s where their losses begin, although it may seem like a brilliant approach to stocking up more BTS as price rises, they forget the other side of the trade, where do I get more CNY to close my position when price drops?… A better approach would have been to invest in an alternative asset or just hold the Smartcoin. This would allow the user to possibly get a return of investment when bitshares price goes down, or at least close position.

Ultimately, the reason to open a margin trade in the first place, should be because the user sees a better investment opportunity in an alternative asset. “He wants to buy the asset without losing his bitshares holdings”… If his margin is called, it wouldn’t matter because his goal has still been achieved.