Author Topic: Margin Call Explanation & Beware of Illiquid Markets with Low Margin  (Read 13789 times)

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Xeldal

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Nothing is confusing, once you get the basic idea.
The "S Protection price" is protecting the shorts from buying cheap! So  if they are called they cannot buy cheap, they can only buy expensive.
That's the general  idea behind it!

PS
You are so  behind in the theory of the square wheels Xeroc. :)

I may be lost in your sarcasm.   I get that it is illogical for a bid to stay high, when he can lower his bid and force a margin call.  In a thin market this is easy.  A thick market would be more difficult.  Its not logical to lower your bid when there are other bids still above the margin call price;  You may never get filled.   All participants would need to play the same game, or you would have to sell into the bid till the margin call triggered, but this has a cost that may be more than the reward.

In addition, a short can always, at any time, manually close his position at "cheap"(when bid is higher than his Margin Call Price), instead of waiting for a forced liquidation at "expensive"(when bid falls below his Margin Call Price).   

I don't like the current rules with low liquidity because they are easily taken advantage of but I guess they make sense in protecting the system from there not being enough bid to cover a margin called short.  Its only partial protection though.  I'm not sure its worth the distortion it creates.  Essentially incentivizing the bid to stay just above the SQP rate.

What are you suggesting should be changed, to make this wheel round?  Should the short be called only when the feed drops below his margin call price filling all available bids down to the SQP rate(10%)?  essentially like we had in BTS1.   

I think so long as the markets determining the feeds are external to the Dex and greater in volume the old rule is more practical, but with greater systemic risk.  Once the internal markets are leading the feed, I think this issue goes away and really may be unnecessary.

Offline tonyk

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The SQP defines the most that a margin position will ever be forced to pay to cover (that is it).   It is there only to protect against thin markets.
A margin position will be forced to sell its collateral anytime the highest offer to buy the collateral is less than the call price (USD/BTS).   

The market defines everything (as it should).
The market sets the value of BTS in terms of BitUSD based on the highest offer to buy BTS with BitUSD.
Once we know the market value, we can trigger margin calls.

There is ONE edge case and that is for thin markets.  In this edge case the market cannot define the value of BTS in terms of BitUSD.  This is where we use the SQP as the lower bound on the value of BTS in terms of BitUSD.

You still do not see how this whole theory of yours hangs on the market participants exhibiting illogical behaviour, do you?

I don't see the illogical behavior.  Please explain.

Do margin calls buy bitUSD left or right of the SQP in your figure abote (0.005 bitUSD/BTS)
if they only buy on the right hand side of the SQP than I do understand tony, because they only execute if there are no orders there ..
so I assume they buy on the left hand side of the SQP .. which would make them pay "more" than the SQP in BTS-terms to aquire bitUSD .. but you said is the "MOST they have to pay to cover" would be misleading since the best they can do (cheapest) is AT the SQP and it only gets more expensive the less orders/volume there are ..

Maybe that is what confuses tony (and me)!?

So, margin calls occure when the highest bid is less than the margin call price (which is a function of the SWAN price and the maintenance collateral ratio) AND the SQP crossed the margin called price and is thus left (read: smaller) of it ..

but WHERE do margin calls execute? which orders are bought at which prices and what are the limits for the margin call?
Nothing is confusing, once you get the basic idea.
The "S Protection price" is protecting the shorts from buying cheap! So  if they are called they cannot buy cheap, they can only buy expensive.
That's the general  idea behind it!

PS
You are so  behind in the theory of the square wheels Xeroc. :)
« Last Edit: October 28, 2015, 03:26:16 pm by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Troglodactyl

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The SQP defines the most that a margin position will ever be forced to pay to cover (that is it).   It is there only to protect against thin markets.
A margin position will be forced to sell its collateral anytime the highest offer to buy the collateral is less than the call price (USD/BTS).   

The market defines everything (as it should).
The market sets the value of BTS in terms of BitUSD based on the highest offer to buy BTS with BitUSD.
Once we know the market value, we can trigger margin calls.

There is ONE edge case and that is for thin markets.  In this edge case the market cannot define the value of BTS in terms of BitUSD.  This is where we use the SQP as the lower bound on the value of BTS in terms of BitUSD.

You still do not see how this whole theory of yours hangs on the market participants exhibiting illogical behaviour, do you?

I don't see the illogical behavior.  Please explain.

Do margin calls buy bitUSD left or right of the SQP in your figure abote (0.005 bitUSD/BTS)
if they only buy on the right hand side of the SQP than I do understand tony, because they only execute if there are no orders there ..
so I assume they buy on the left hand side of the SQP .. which would make them pay "more" than the SQP in BTS-terms to aquire bitUSD .. but you said is the "MOST they have to pay to cover" would be misleading since the best they can do (cheapest) is AT the SQP and it only gets more expensive the less orders/volume there are ..

Maybe that is what confuses tony (and me)!?

So, margin calls occure when the highest bid is less than the margin call price (which is a function of the SWAN price and the maintenance collateral ratio) AND the SQP crossed the margin called price and is thus left (read: smaller) of it ..

but WHERE do margin calls execute? which orders are bought at which prices and what are the limits for the margin call?
My understanding is that margin calls only fill if the best offer to buy their collateral is asking for less than feed*mssr BTS per bitAsset unit, but more than the short's call price in BTS per bitAsset unit.

So if there is a low volume of margin calls, bitAsset holders should compete to fill them at a better price for the shorter.  If there are widespread margin calls then there's no need to compete, and bitAsset holders should all place their offers at the edge of feed*mssr. If the mssr is too high, then bitAsset holders can trigger widespread margin calls by all placing their offers at feed*mssr.

Offline xeroc

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The SQP defines the most that a margin position will ever be forced to pay to cover (that is it).   It is there only to protect against thin markets.
A margin position will be forced to sell its collateral anytime the highest offer to buy the collateral is less than the call price (USD/BTS).   

The market defines everything (as it should).
The market sets the value of BTS in terms of BitUSD based on the highest offer to buy BTS with BitUSD.
Once we know the market value, we can trigger margin calls.

There is ONE edge case and that is for thin markets.  In this edge case the market cannot define the value of BTS in terms of BitUSD.  This is where we use the SQP as the lower bound on the value of BTS in terms of BitUSD.

You still do not see how this whole theory of yours hangs on the market participants exhibiting illogical behaviour, do you?

I don't see the illogical behavior.  Please explain.

Do margin calls buy bitUSD left or right of the SQP in your figure abote (0.005 bitUSD/BTS)
if they only buy on the right hand side of the SQP than I do understand tony, because they only execute if there are no orders there ..
so I assume they buy on the left hand side of the SQP .. which would make them pay "more" than the SQP in BTS-terms to aquire bitUSD .. but you said is the "MOST they have to pay to cover" would be misleading since the best they can do (cheapest) is AT the SQP and it only gets more expensive the less orders/volume there are ..

Maybe that is what confuses tony (and me)!?

So, margin calls occure when the highest bid is less than the margin call price (which is a function of the SWAN price and the maintenance collateral ratio) AND the SQP crossed the margin called price and is thus left (read: smaller) of it ..

but WHERE do margin calls execute? which orders are bought at which prices and what are the limits for the margin call?
« Last Edit: October 28, 2015, 02:36:32 pm by xeroc »

jakub

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@tonyk
Please express your thoughts in a more comprehensive way so that others can participate in the discussion.
You might be right about something important but unless you express yourself in a more verbose way, this looks like a private conversation meant only for those who are able to guess what you mean.

Offline tonyk

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In the above example order book, you believe the sell orders below 291 make sense...more dangerously you have based you system on the assumption that people will just act like that...   irrationally.



PS
In more general terms what you call "Short squeeze protection" is the complete opposite - It is the "Shorts' fuck up ratio" aka with what percentage exactly you can screw up the shorts, as per the system design.

Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline tonyk

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So, I assume you do not agree that one, acting logically, will always take a better price for her trade  when offered a chance.


Put in other words - in this theory of yours,  all sellers have some sense of value they expect to get for whatever they are selling. Moreover this value judgment is independent and not effected by any objective signals from the reality they live in.
« Last Edit: October 25, 2015, 05:06:08 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline tonyk

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The SQP defines the most that a margin position will ever be forced to pay to cover (that is it).   It is there only to protect against thin markets.
A margin position will be forced to sell its collateral anytime the highest offer to buy the collateral is less than the call price (USD/BTS).   

The market defines everything (as it should).
The market sets the value of BTS in terms of BitUSD based on the highest offer to buy BTS with BitUSD.
Once we know the market value, we can trigger margin calls.

There is ONE edge case and that is for thin markets.  In this edge case the market cannot define the value of BTS in terms of BitUSD.  This is where we use the SQP as the lower bound on the value of BTS in terms of BitUSD.

You still do not see how this whole theory of yours hangs on the market participants exhibiting illogical behaviour, do you?

I don't see the illogical behavior.  Please explain.

well, the traders got it...minutes after the post (congrats to 850+ USD seller,btw ). But that is just an interesting observation, not why I am writing this.
-------------

Are you willing to accept a lemma:

if you are selling  something for 100 UDS [so much selling that you are ready and put in the order book], you will be more than willing to sell it for 120 USD [mind you faster]?
« Last Edit: October 23, 2015, 04:22:46 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline maqifrnswa

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You still do not see how this whole theory of yours hangs on the market participants exhibiting illogical behaviour, do you?

I don't see the illogical behavior.  Please explain.

I think this is his point:  The market defines the value of BitUSD, however, in order to margin call someone has to be winning to (illogically) pay less for a BitUSD than the market defined.  What happens if the market is not thin, and 1 BitUSD = 1.15 USD worth of BTS? What is the reason someone should expect the price of BitUSD relative to USD to drop?

At the same time, I don't think it is illogical -- I think there is a reason to expect that BitUSD relative to USD will drop, and SQP is part of the reason. If 1 BitUSD > 1 USD, that means there are too few BitUSD. SQP means no BitUSD will be automatically destroyed (margin called), but people are still free to create BitUSD. The supply of BitUSD relative to USD is expected to increase, therefore the value of BitUSD relative to USD should drop.
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Offline bytemaster

The SQP defines the most that a margin position will ever be forced to pay to cover (that is it).   It is there only to protect against thin markets.
A margin position will be forced to sell its collateral anytime the highest offer to buy the collateral is less than the call price (USD/BTS).   

The market defines everything (as it should).
The market sets the value of BTS in terms of BitUSD based on the highest offer to buy BTS with BitUSD.
Once we know the market value, we can trigger margin calls.

There is ONE edge case and that is for thin markets.  In this edge case the market cannot define the value of BTS in terms of BitUSD.  This is where we use the SQP as the lower bound on the value of BTS in terms of BitUSD.

You still do not see how this whole theory of yours hangs on the market participants exhibiting illogical behaviour, do you?

I don't see the illogical behavior.  Please explain.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline tonyk

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The SQP defines the most that a margin position will ever be forced to pay to cover (that is it).   It is there only to protect against thin markets.
A margin position will be forced to sell its collateral anytime the highest offer to buy the collateral is less than the call price (USD/BTS).   

The market defines everything (as it should).
The market sets the value of BTS in terms of BitUSD based on the highest offer to buy BTS with BitUSD.
Once we know the market value, we can trigger margin calls.

There is ONE edge case and that is for thin markets.  In this edge case the market cannot define the value of BTS in terms of BitUSD.  This is where we use the SQP as the lower bound on the value of BTS in terms of BitUSD.

You still do not see how this whole theory of yours hangs on the market participants exhibiting illogical behaviour, do you?
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bytemaster

The SQP defines the most that a margin position will ever be forced to pay to cover (that is it).   It is there only to protect against thin markets.
A margin position will be forced to sell its collateral anytime the highest offer to buy the collateral is less than the call price (USD/BTS).   

The market defines everything (as it should).
The market sets the value of BTS in terms of BitUSD based on the highest offer to buy BTS with BitUSD.
Once we know the market value, we can trigger margin calls.

There is ONE edge case and that is for thin markets.  In this edge case the market cannot define the value of BTS in terms of BitUSD.  This is where we use the SQP as the lower bound on the value of BTS in terms of BitUSD.

For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline botfund

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A margin call will occur any time the highest bid is less than the CALL PRICE and greater than SQP


The current rule makes the order book look silly and I think this should be changed to something like:

A margin call will occur any time the highest bid is greater than SQP and CALL PRICE is greater than SQP.

Edit: I remember there had been the same bug in BTS1 and we have it now again.
 
 
« Last Edit: October 21, 2015, 11:19:56 pm by botfund »

Offline tonyk

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please use simple words to explain this ,
I think original intention is to make many people use this ,because there need market deep .
but I think less people can make it clear

and now in message board of btc38.com ,there are a little rumour that committee change parameter cause many people been margin .
BM can you explain the details ?



I like your font size selection!

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« Last Edit: October 21, 2015, 09:00:15 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline BTSdac

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please use simple words to explain this ,
I think original intention is to make many people use this ,because there need market deep .
but I think less people can make it clear

and now in message board of btc38.com ,there are a little rumour that committee change parameter cause many people been margin .
to my understand , it is not trust , but I don`t know the details
I try to understand it ,
1.SQP is the initially collateral , that is minimum initially collateral when people borrow BTA ? 
2.
Margin is called any time the HIGH BID is less than the CALL PRICE.    In other words anytime the highest offer to buy the collateral and pay off the debt is below the call price.
HIGH in above sentence is in BTS/BITUSD  or BITUSD/BTS?
BM can you explain the details ?
« Last Edit: October 21, 2015, 09:04:20 am by BTSdac »
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