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Offline starspirit

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Margin calls on shorts - are they full or partial?
« on: May 14, 2015, 01:52:26 AM »

When margin calls are made against shorts, is the total position covered, or just enough to get it back to a target collateral ratio?

For example, suppose target BTS collateral (shorts collateral only) is 100% and a margin call is made at 50%. Only half the position would need to be closed to get them back to 100% coverage.

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Re: Margin calls on shorts - are they full or partial?
« Reply #1 on: May 14, 2015, 07:43:45 AM »
The total position is covered, if possible.

The call price remains unchanged, i. e. if the position is partially covered it will stay in margin called state.
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Offline starspirit

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Re: Margin calls on shorts - are they full or partial?
« Reply #2 on: May 14, 2015, 10:38:50 AM »
The total position is covered, if possible.

The call price remains unchanged, i. e. if the position is partially covered it will stay in margin called state.

But I suppose it would be feasible for the call price to be changed to a new level, reflecting the new collateral ratio, right?

I'm only noting that CFD providers and brokers don't usually close all positions unless required. They usually just exercise the discretion to close enough positions so that the collateral buffer is adequate again relative to the remaining exposure.

This just made me wonder what shorts would prefer, given on the surface at least it would not seem a difficult change (effectively just modifying the call amount and the call price).

I know there's bigger fish to fry right now, it was just something I noticed in thinking about my CFD account.

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Re: Margin calls on shorts - are they full or partial?
« Reply #3 on: May 14, 2015, 12:26:20 PM »

But I suppose it would be feasible for the call price to be changed to a new level, reflecting the new collateral ratio, right?

I'm only noting that CFD providers and brokers don't usually close all positions unless required. They usually just exercise the discretion to close enough positions so that the collateral buffer is adequate again relative to the remaining exposure.

This just made me wonder what shorts would prefer, given on the surface at least it would not seem a difficult change (effectively just modifying the call amount and the call price).

I know there's bigger fish to fry right now, it was just something I noticed in thinking about my CFD account.

I suppose that since margin calls exist to protect the longs from a black swan, it would make sense to distribute available funds over all margin-called positions in such a way that the principal/collateral ratio is pushed to the same level for all such positions, and to adjust the call price accordingly (to simplify bookkeeping, mostly).

OTOH this is a somewhat complicated optimization that would be useless in a healthy market.
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Offline starspirit

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Re: Margin calls on shorts - are they full or partial?
« Reply #4 on: May 14, 2015, 10:06:50 PM »

But I suppose it would be feasible for the call price to be changed to a new level, reflecting the new collateral ratio, right?

I'm only noting that CFD providers and brokers don't usually close all positions unless required. They usually just exercise the discretion to close enough positions so that the collateral buffer is adequate again relative to the remaining exposure.

This just made me wonder what shorts would prefer, given on the surface at least it would not seem a difficult change (effectively just modifying the call amount and the call price).

I know there's bigger fish to fry right now, it was just something I noticed in thinking about my CFD account.

I suppose that since margin calls exist to protect the longs from a black swan, it would make sense to distribute available funds over all margin-called positions in such a way that the principal/collateral ratio is pushed to the same level for all such positions, and to adjust the call price accordingly (to simplify bookkeeping, mostly).

OTOH this is a somewhat complicated optimization that would be useless in a healthy market.
You could try some sort of global optimisation like this, but I think its enough to do it at the individual level. That is, cover 50% of the short, re-establishing 2:1 collateral coverage, and reset the call price. This still provides black swan protection, while minimising the size of margin calls on shorts.

Example:
A $100 short gets set at a price of 100, offering 100 BTS of collateral (100%). The call price is 133, representing a 25% fall in the value of total collateral from 200% ($200) to 150% ($150).
If the call price of 133 is hit, it is sufficient to sell $50 of the BTS collateral to cover $50 of the short obligation. The end result will be that there is $100 of collateral remaining to cover $50 of obligation, giving 2:1 coverage again.
The call price could then be reset to 177 before another call is required on this short.
« Last Edit: May 15, 2015, 03:46:12 AM by starspirit »

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Re: Margin calls on shorts - are they full or partial?
« Reply #6 on: May 15, 2015, 10:33:15 PM »
See also https://github.com/BitShares/bitshares/issues/1535
That's it! Great to see it on the agenda. I can foresee this being useful if shorts eventually get more flexibility in what they are able to use their bitAsset "loans" to fund...

 

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