Author Topic: Margin Call Explanation & Beware of Illiquid Markets with Low Margin  (Read 21165 times)

0 Members and 1 Guest are viewing this topic.

jakub

  • Guest


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.

I guess the yellow buy order at 291.24615 is a margin call order attempting to buy USD to close the collateral position.
Does anyone know why it could not execute while there were matching sell orders?
What was the SQP in this case? 291.24615?

jakub

  • Guest

That is certainly part of it.  It is not clear to the user that his margin call will be based on the bid, and not like prior BTS1 rules, based on the feed.   

I think the conclusion of this debate might be: why do we have a feed at all?  If you can't use SQP without liquidity, and if you have liquidity, you don't need a feed; What good is the feed? outside of a settlement rate which we claim should ideally never be necessary to use.

I have to admit, that basing the margin call on the bid (at the exchange, not from outside the exchange) makes sense and is how every exchange out there would do it, and rightfully so as they intend to remain solvent.  We just saw a margin event on polo as an example.  Obviously there are no feeds involved.  The problem is, an exchange would not likely open margin accounts to trade an asset that was not liquid, and our MPA SmartCoins can not exist without margin accounts.  Its unavoidable.  So to protect illiquid markets the margin call should be based on the feed...or the market should not be able to trade without some very large level market depth liquidity.  Which currently none of our MPA's qualify for and if they did the feed would never come into play especially at a 50% SQP.

In the case of massive liquidity, the feeds are mostly irrelevant and an SQP approach can work, but only because its unnecessary and irrelevant.

Given that margin accounts are by default required to have a functioning SmartCoin.  I believe more weight, not less, should be put on the feeds, to protect the backbone of the SmartCoin markets, until the market is so large that they are perhaps inconsequential.

I think I'm getting the picture:
(1) if we have good liquidity the SQP concept is irrelevant as it never has a chance to be applied.
(2) If we have poor liquidity the SQP concept (together with basing the margin call on the internal bid) works badly as it disregards the feed whereas the feed is the only thing which we can rely on when we have poor liquidity.

So the SQP concept is delusional in this sense: it is meant to protect the shorts from the effects of poor liquidity but it actually does the opposite - it cuts us off from the feed when we need it the most.
« Last Edit: November 02, 2015, 09:35:57 pm by jakub »

Xeldal

  • Guest
I believe SQP rule is misguided and adds an unnecessary level of complication with ultimately no benefit.  Currently we are lying to shorts about where/when their positions will/can be called.

If your goal is to encourage shorts to put up more collateral, simply raise the minimum collateral requirement.
If your goal is to reduce dependence on the feed, increase liquidity.  Ill-liquid markets *should be heavily feed based.

If the information we give to the shorter is " your margin call price is feed price x "  then they should never be called if the feed price is above x.  Currently they can be called when the price (in all other markets) is upto 10% above x (their prescribed call price).  This is a terrible practice IMO.   Initially, shorts could be called upto an unbelievable 50% above their margin call price.

In effect SQP just raises the price at which shorts can be forced margin called.  regardless of whether the fair price/ feed  is above their prescribed margin call rate.

This really needs to be gotten rid of IMO.  Or the ACTUAL margin call rate needs to be communicated (Call rate * (1 + SQP percentage))

In nearly every way, I think the rules under bts1 for margin calls are preferable.

So the main thing is the discrepancy between your personal margin-call price displayed in the GUI and the actual margin-call execution price you can get on an ill-liquid market (10% or previously 50% above the feed).
And the problem is those two prices can be quite far from each other: you expect to be margin-called at price x but the margin call actually executes at price y.
Do I understand your point correctly?

That is certainly part of it.  It is not clear to the user that his margin call will be based on the bid, and not like prior BTS1 rules, based on the feed.   

I think the conclusion of this debate might be: why do we have a feed at all?  If you can't use SQP without liquidity, and if you have liquidity, you don't need a feed; What good is the feed? outside of a settlement rate which we claim should ideally never be necessary to use.

I have to admit, that basing the margin call on the bid (at the exchange, not from outside the exchange) makes sense and is how every exchange out there would do it, and rightfully so as they intend to remain solvent.  We just saw a margin event on polo as an example.  Obviously there are no feeds involved.  The problem is, an exchange would not likely open margin accounts to trade an asset that was not liquid, and our MPA SmartCoins can not exist without margin accounts.  Its unavoidable.  So to protect illiquid markets the margin call should be based on the feed...or the market should not be able to trade without some very large level market depth liquidity.  Which currently none of our MPA's qualify for and if they did the feed would never come into play especially at a 50% SQP.

In the case of massive liquidity, the feeds are mostly irrelevant and an SQP approach can work, but only because its unnecessary and irrelevant.

Given that margin accounts are by default required to have a functioning SmartCoin.  I believe more weight, not less, should be put on the feeds, to protect the backbone of the SmartCoin markets, until the market is so large that they are perhaps inconsequential.

jakub

  • Guest
I believe SQP rule is misguided and adds an unnecessary level of complication with ultimately no benefit.  Currently we are lying to shorts about where/when their positions will/can be called.

If your goal is to encourage shorts to put up more collateral, simply raise the minimum collateral requirement.
If your goal is to reduce dependence on the feed, increase liquidity.  Ill-liquid markets *should be heavily feed based.

If the information we give to the shorter is " your margin call price is feed price x "  then they should never be called if the feed price is above x.  Currently they can be called when the price (in all other markets) is upto 10% above x (their prescribed call price).  This is a terrible practice IMO.   Initially, shorts could be called upto an unbelievable 50% above their margin call price.

In effect SQP just raises the price at which shorts can be forced margin called.  regardless of whether the fair price/ feed  is above their prescribed margin call rate.

This really needs to be gotten rid of IMO.  Or the ACTUAL margin call rate needs to be communicated (Call rate * (1 + SQP percentage))

In nearly every way, I think the rules under bts1 for margin calls are preferable.

So the main thing is the discrepancy between your personal margin-call price displayed in the GUI and the actual margin-call execution price you can get on an ill-liquid market (10% or previously 50% above the feed).
And the problem is those two prices can be quite far from each other: you expect to be margin-called at price x but the margin call actually executes at price y.
Do I understand your point correctly?

Offline tonyk

  • Hero Member
  • *****
  • Posts: 3308
    • View Profile
I believe SQP rule is misguided and adds an unnecessary level of complication with ultimately no benefit.  Currently we are lying to shorts about where/when their positions will/can be called.

If your goal is to encourage shorts to put up more collateral, simply raise the minimum collateral requirement.
If your goal is to reduce dependence on the feed, increase liquidity.  Ill-liquid markets *should be heavily feed based.

If the information we give to the shorter is " your margin call price is feed price x "  then they should never be called if the feed price is above x.  Currently they can be called when the price (in all other markets) is upto 10% above x (their prescribed call price).  This is a terrible practice IMO.   Initially, shorts could be called upto an unbelievable 50% above their margin call price.

In effect SQP just raises the price at which shorts can be forced margin called.  regardless of whether the fair price/ feed  is above their prescribed margin call rate.

This really needs to be gotten rid of IMO.  Or the ACTUAL margin call rate needs to be communicated (Call rate * (1 + SQP percentage))

In nearly every way, I think the rules under bts1 for margin calls are preferable.
+ 1

@jakub - above you will have the pleaser to read my thoughts in way better English than I could have  ever managed... but yes Xelda is one that thinks straight and logically explains the issues.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Xeldal

  • Guest
I believe SQP rule is misguided and adds an unnecessary level of complication with ultimately no benefit.  Currently we are lying to shorts about where/when their positions will/can be called.

If your goal is to encourage shorts to put up more collateral, simply raise the minimum collateral requirement.
If your goal is to reduce dependence on the feed, increase liquidity.  Ill-liquid markets *should be heavily feed based.

If the information we give to the shorter is " your margin call price is feed price x "  then they should never be called if the feed price is above x.  Currently they can be called when the price (in all other markets) is upto 10% above x (their prescribed call price).  This is a terrible practice IMO.   Initially, shorts could be called upto an unbelievable 50% above their margin call price.

In effect SQP just raises the price at which shorts can be forced margin called.  regardless of whether the fair price/ feed  is above their prescribed margin call rate.

This really needs to be gotten rid of IMO.  Or the ACTUAL margin call rate needs to be communicated (Call rate * (1 + SQP percentage))

In nearly every way, I think the rules under bts1 for margin calls are preferable. 

Offline tonyk

  • Hero Member
  • *****
  • Posts: 3308
    • View Profile
I think I got it now .. gonna try to put this on paper with some figures to make it more clear to others .. let's see if tony agrees with what I am writing down :D
Looking forward to it :)
Tony might be on to something but his inability to let go of the sarcastic & succinct style even for a moment is a big obstacle to understanding.

I can talk long and longer... but when the creator of this nonsense is silent... after causing real true supporters of his project to loose  thousands upon thousands of dollars, for no reason at all but just for him to be amused...it is not my place to talk or explain.

https://bitshares.openledger.info/#/account/tester12

Is this enough for you? The guy above lost about 1.2 mil of his 2.9 mil bts... in a single instance with no warning..And this is a straight loss of the tokens ...not just some run of the mill position depreciation due to price drop.


and yes, this was expected [predicted is a strong word for something about to happen with 100% certainty] :

ha-ha-ha

Ohh, I am sorry, tester12. :)

 My condolences.
"Flowers grow out of dark moments."

On this note I will shut up...
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bytemaster

Is this right?


Dot file decision tree
Code: [Select]
digraph decision{
A [label="New Block"]
B [label="Is the highest bid (in USD/BTS) < SPP?", shape=box]
C [label="MARGIN CALLS NOT EXECUTED", shape=box]
D [label="Is the highest bid < margin call price?", shape=box]
E [label="MARGIN CALL EXECUTED AT HIGHEST BID", shape=box]

A -> B
B -> C [label="True"]
B -> D [label="False"]
D -> E  [label="True"]
D -> C  [label="False"]

}

I *think* you have this right assuming prices are in the "right" orientation USD / BTS and not "BTS/USD"
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

  • Hero Member
  • *****
  • Posts: 3308
    • View Profile
lol

Let's protect the shorts to 5,000% or 50,000% by setting the SQP [shorts' protection price] to that level.

Hope this helps [a single person at least] to get it.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline cube

  • Hero Member
  • *****
  • Posts: 1404
  • Bit by bit, we will get there!
    • View Profile
  • BitShares: bitcube
I can understand tony's response.  A number of supporters have lost a huge sum from this event.  We can justify for the experimental change to advance bts but not for the great pain these supporters felt.  They do not deserve any of it.
ID: bitcube
bitcube is a dedicated witness and committe member. Please vote for bitcube.

Offline tonyk

  • Hero Member
  • *****
  • Posts: 3308
    • View Profile
I think I got it now .. gonna try to put this on paper with some figures to make it more clear to others .. let's see if tony agrees with what I am writing down :D
Looking forward to it :)
Tony might be on to something but his inability to let go of the sarcastic & succinct style even for a moment is a big obstacle to understanding.

I can talk long and longer... but when the creator of this nonsense is silent... after causing real true supporters of his project to loose  thousands upon thousands of dollars, for no reason at all but just for him to be amused...it is not my place to talk or explain.

https://bitshares.openledger.info/#/account/tester12

Is this enough for you? The guy above lost about 1.2 mil of his 2.9 mil bts... in a single instance with no warning..And this is a straight loss of the tokens ...not just some run of the mill position depreciation due to price drop.


and yes, this was expected [predicted is a strong word for something about to happen with 100% certainty] :

ha-ha-ha

« Last Edit: October 30, 2015, 10:34:10 pm by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline maqifrnswa

  • Hero Member
  • *****
  • Posts: 661
    • View Profile
Is this right?


Dot file decision tree
Code: [Select]
digraph decision{
A [label="New Block"]
B [label="Is the highest bid (in USD/BTS) < SPP?", shape=box]
C [label="MARGIN CALLS NOT EXECUTED", shape=box]
D [label="Is the highest bid < margin call price?", shape=box]
E [label="MARGIN CALL EXECUTED AT HIGHEST BID", shape=box]

A -> B
B -> C [label="True"]
B -> D [label="False"]
D -> E  [label="True"]
D -> C  [label="False"]

}
« Last Edit: October 29, 2015, 07:06:28 pm by maqifrnswa »
maintains an Ubuntu PPA: https://launchpad.net/~showard314/+archive/ubuntu/bitshares [15% delegate] wallet_account_set_approval maqifrnswa true [50% delegate] wallet_account_set_approval delegate1.maqifrnswa true

jakub

  • Guest
I think I got it now .. gonna try to put this on paper with some figures to make it more clear to others .. let's see if tony agrees with what I am writing down :D
Looking forward to it :)
Tony might be on to something but his inability to let go of the sarcastic & succinct style even for a moment is a big obstacle to understanding.

Offline xeroc

  • Board Moderator
  • Hero Member
  • *****
  • Posts: 12922
  • ChainSquad GmbH
    • View Profile
    • ChainSquad GmbH
  • BitShares: xeroc
  • GitHub: xeroc
I think I got it now .. gonna try to put this on paper with some figures to make it more clear to others .. let's see if tony agrees with what I am writing down :D

Offline tonyk

  • Hero Member
  • *****
  • Posts: 3308
    • View Profile
What are you suggesting should be changed, to make this wheel round? 

Not trying to discover and/or use new  and improved square wheels, comes to mind as a good starting point.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.