In a decentralized environment, the cryptocurrency exchanges became that resources where a significant mass of actual funds is concentrated and all participants actively interact. Currently, more leading crypto exchanges enable users to try margin trading, tempting prospects for increasing profits without the additional investments. Since the use of margin loan is very promising and has important subtleties, it is not superfluous to get acquainted with the basic principles of this tool.
Marginal trading is, in fact, trading using the funds that a trader lends on a particular exchange using his own deposit as a pledge (term “margin” is synonymous with “pledge”). In other words, the margin trading allows buying assets for much larger amounts than is available. The exchange, which provides the trader with a loan, of course, doesn’t forget about its own benefit — interest is charged for using the loan.
Marginal trading is common both in the commodity, stock, and foreign exchange markets. And recently it has become possible to earn money on tokens from borrowed funds. If you want to use borrowed funds to increase your income, Decidex (DDX) provides an opportunity to take into the pledge and sell almost all stock assets, including dollars, gold, silver, bitcoins, and many others without credit checks.
This type of trade is slightly different from the usual one. On Decidex (DDX), you can take a bitAssets for a 200% deposit as DDX directly from the blockchain and open a short position. BitAssets is a fully decentralized version (bitUSD / bitRUBLE, etc.), secured with a DDX deposit, so you can request a quote calculation at any time and then exchange the DDX to BTC and withdraw BTC as usually.
Initially, you can get bitAssets (smart coins) in only one way — take bail from the blockchain in DDX. Let’s consider the situation: for example, we are trying to take 1 BitRUB, the current exchange rate for 1 BitRUB on the quotation is 100 DDX (the exchange rates are given by delegates using special scripts), minimum possible collateral ratio is 1.75 but if the underlying asset rate goes down — there will be a high risk of catching a margin call, therefore it is recommended to put the security higher. For instance, you put the collateral at 2.25 times, so our pledge for 1 BitRUB will be 225 DDX. After opening a position, a smart contract blocks your DDX and gives BitRUB. Then, it’s possible to do anything with it, for example, sell it on the market for DDX.
If you haven’t guessed the course direction, you can always update the position adding collateral to delay the position forced closing. So, you sold BitRUB for DDX, after which the DDX course has grown. You buy 1 BitRUB (for a smaller amount than received from the sale) close the position by returning BitRUB and getting back your deposit, in addition, you will receive a profit in DDX from the successful closing of a short position. So with the growth rate of DDX — you reduce the repayment of the loan because, in order to close it, you need to buy a similar amount of BitRUB. But since the DDX course is growing, it’s possible to buy more bitRUB, consequently, the loan repayments will be less, as you pay exactly the number of borrowed coins.
The open positions do not have a statute of limitations and are not subject to additional commissions. The main advantage is that this type of assets is completely devoid of counterparty risks because it has collateral. You can always request a settlement not worrying that suddenly the stock exchange has nothing to pay and the funds’ withdrawal will be blocked. Everything works strictly on smart contracts, without the third party intervention.
You can also use this opportunity as private banking if you suddenly need a fiat money and don’t want to sell DDX as you think that it’ll grow in the future. At this rate, you can leave DDX as collateral for the blockchain and borrow some money. As a result, you have borrowed from the blockchain the needed amount, which can be exchanged for fiat and used for your own purposes. At the same time, you received this loan without information about your income, banks approval of, time limits, and payment of any interest.
This platform is truly unique due to providing a secured loan, which remains free of counterparty risk. This is possible due to the security of collateral and calculations which are carried out by the network (as well as the software protocol). Moreover, the smart coins are less volatile than other cryptocurrencies — the maximum percentage of volatility doesn’t usually exceed 1% of the asset value.
The leverage, together with the high volatility of the tokens makes it possible to extract the high profits from the margin trade. For a trader who is able to successfully determine the price trends in the cryptocurrency market, margin trading is a useful tool that allows repeatedly increasing profits without increasing working capital.