Apologies if this is a silly question, I just want to get my head around this.
So I've been busy accumulating BTS over the last few months and I have a target holding in mind. My current investment plan would take me up to November to meet that goal providing the price stays around current levels. I'm currently feeling that the price of BTS will be a lot higher sooner rather than later.
I was playing around with the DEX earlier, and I noted that I can borrow USD against my Bitshares holding. So is my thinking right that if I borrowed USD against my current Bitshares holding and bought more Bitshares with it, a certain amount of my holding would be locked up until I paid back the loan (through the sale of the Bitshares bought with the borrowed USD at what you would hope to be a much higher price).
This would leave me with my initial Bitshares holding, plus any potential profit that may have been gained.
My questions are:
What would happen if I borrowed and the price dropped significantly? I am assuming that I become liable for the shortfall between the collateral value and the loan value?
Is there a time limit to paying back that shortfall, or could you in theory have the position open for as long as you wanted?
Thanks - and apologies if these are dumb questions.
If you borrow bitUSD and the value of BTS drops you can buy back more BTS with the same USD - this is called a short position.
If, as you believe, the value of BTS increases you will get called and be forced to buy back the original BTS with more bitUSD.
Borrowing on the DEX is an incredibly powerful tool, however, you have to understand what you're getting into.
Just borrow $10 bitUSD and see what happens. Set your margin at 2.00 and see if you get called on the next leg up for BTS. Very cheap but very valuable lesson. Cheers!
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Thank you for the good advice! I'll test the borrow and see what happens.
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Here is a link how to short sell HERO/BTS. Hopefully it helps although it's not about short selling USD/BTS.
http://www.sovereignhero.com/buy-sell-short-shares/
Collateral should be big enough; meaning that with HERO I have used from 5 to 6...
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Not a dumb question! I'm here reading because I wanted to know how this works as well. Thank you for asking!
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