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Trading with Bitshares: Profiting from Margin Calls by finpunk

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· @finpunk ·
$33.60
Trading with Bitshares: Profiting from Margin Calls
If you enjoy trading you should definitely check out Bitshares, [OpenLedger](https://bitshares.openledger.info), and start picking up some opportunities to profit. Here's one of them we just came across in the bitBTC market:

https://cdn.pbrd.co/images/1Uaq1BMb.png

bitBTC is one of Bitshares's "smartcoins", which are essentially market-pegged assets controlled by a price feed and smart contract with collateral linking the underlying pair. In this case, we're looking at a synthetic BTC contract that consists of a constantly adjusting bundle of BTS that equate to 1 BTC. The settlement amount listed up top is the feed exchange rate and means that at this point in time each 1 bitBTC contract consisted of 169,315.40342 BTS. 

OK with that out of the way, how to profit from this situation? Well, what we can see going on in the market at this point in time is that someone who had previously shorted bitBTC had a margin call; the amount of collateral they have bucketed against the contract(s) fell below the call amount and their position was dumped onto the market at an automatic execution at price feed + 10%. 

If you have some bitBTC sitting around in your wallet, then you can go ahead and sell at the 186,246.94377 price listed in yellow in the order book to the left. Yellow bids are orders triggered by margin calls. You'd be earning a 10% premium over the exchange rate.

If you're new to this and don't have any bitBTC sitting in inventory for just such an auspicious occasion, you can click the "Borrow BTC" button and enter the "Debt" amount you'd like to borrow, then move the "collateral ratio" slider to something over 2 (2.15 seems to be a safe collateral amount without being called). 

Voila, the system will lock up some of your BTS as collateral against the contract and you'll have your bitBTC to sell to the guy getting margin called. 

https://cdn.pbrd.co/images/1UaSjOGK.png

At some point you can reverse the transaction by buying bitBTC and then zeroing out the Debt amount in that Margin window. You've at least made 10% selling to the margin called position, but you're taking on the short exposure from borrowing the bitBTC. There's also the opportunity cost of locking up BTS in collateral when you could be doing other productive things with it, like investing in STEEM. 

By the way, you can also buy STEEM (often at discounts) via the same OpenLedger platform in the OPEN.STEEM : BTS market, but that's the subject of another story...
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vote details (47)
@ori ·
$0.15
Upvoted you
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@ppitonak ·
What happens if nobody wants to sell even for this 10% premium for long time (days, weeks)?
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@finpunk ·
then the collateral remains locked up, inaccessible to the original borrower, until the order is filled.
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vote details (1)
@ppitonak ·
1. Will "margin call price" follow settlement price in both directions? 
2. What happens if feed price decreases a lot so that the collateral is high enough? Will the margin call be cancelled?
3. I guess that usually the account that was margin called will not own the asset (in this case bitUSD) but this asset had been sold to third party. How will the situation in the picture look on that person's account?
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@xeroc ·
Good summary.
If you add the #bitshares tag, it will also be visible from the #bitshares category!
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@cylonmaker2053 · (edited)
How do you add multiple tags? i've tried using a space in between tags in the past. Is that right?
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@xeroc ·
$0.14
you can at least add them as hashtags directly in the text if you want .. 
space-separation should work aswell ..
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vote details (1)
@zackcovell ·
i am pretty sure that margin trading must be sketchy on other exchanges, because I have been hardcore warned by so many people. However, maybe there's something different with Bitshares DEX since BTS is the native token you borrow USD against, and it's almost always always going up. Margin trading elsewhere seems so serious but I haven't lost that often using it. But I have developed a modest percentage trick that works over 80% of the time and stashes away over 6% profit nearly every iteration.
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