Brainstorm - Bit20 MSSR / margin call

[yvv]

@EstefanTT I've confirmed your findings and updated the GUI accordingly, it will be included in the next release coming later today.

I've also taken the time to update my Google doc explaining margin call mechanics, I believe it's now in sync with the current rules. Please review here: https://docs.google.com/document/d/1h9E6N9VECh48NKRQGFoPQsSwfZXT4p_TD3LT3CqeTYk/edit?usp=sharing

Now it makes much more sense. Thanks for update.

[svk]

@EstefanTT I've confirmed your findings and updated the GUI accordingly, it will be included in the next release coming later today.

I've also taken the time to update my Google doc explaining margin call mechanics, I believe it's now in sync with the current rules. Please review here: https://docs.google.com/document/d/1h9E6N9VECh48NKRQGFoPQsSwfZXT4p_TD3LT3CqeTYk/edit?usp=sharing

 @xeroc  Could you update the docs.bitshares.eu documentation to reflect my changes?

[DestBest]

Little update: I was able to borrow  BTWTY with real min collateral ratio. SQP  *  MCR  requirement sits at GUI level.
Just edit this line:
https://github.com/cryptonomex/graphene-ui/blob/master/web/app/components/Modal/BorrowModal.jsx#L191

Awesome job!
Thank you for taking the time to test this out

[svk]

@svk , when would be the next gui release ? Would you consider to rectify this issue ?

Sent from my SM-G935F using Tapatalk

Sure. I suspected this needed to be changed so thanks for doing the testing. I intend to release new light wallets either tomorrow or Tuesday, will try to squeeze this in too.

[EstefanTT]

@svk , when would be the next gui release ? Would you consider to rectify this issue ?

Sent from my SM-G935F using Tapatalk

[nmywn]

@yvv It makes sense. Lower required collateral for everyone without any negative impact(?). Sounds great.
In current state some shorters  can borrow more for less.

@EstefanTT
Anyone can do the changes and run own client. Current limitation is false.
@svk can change this for all users, with new gui release.

[yvv]

No forced settlement
MCR: 175% (may increase to 200%)
MSSR: 100.1%

Forced settlement is actually not a bad thing. Since it happens at feed price (minus offset), it is fair for both,  for shorter and for holder. It does not hurt the shorter if an asset is traded at above feed price. If you are force settled, just re-open your position again. If asset is traded below feed, shorting should be discouraged, and if you have opened short position at this time, it is a good time to close it anyway.

[EstefanTT]

A warning should be displayed until the collateral is MCR + 20% (for example).

Normally shorters know what they are doing but to become a shorter, you have to make you first short some day !  Newbies would benefit from this warning.

I'm not well amare of the system that it's use for updating the GUI code.
Who is allowed to do that ?
What could I do to help ?
Would the change be done on the desktop client and OL ? 

Sent from my SM-G935F using Tapatalk

[yvv]

Little update: I was able to borrow  BTWTY with real min collateral ratio. SQP  *  MCR  requirement sits at GUI level.
Just edit this line:
https://github.com/cryptonomex/graphene-ui/blob/master/web/app/components/Modal/BorrowModal.jsx#L191

Nice find. Does it make sense to change GUI such that it allows to put collateral as low as real min, but gives a warning or something if it is dangerously low?

[nmywn]

Little update: I was able to borrow  BTWTY with real min collateral ratio. SQP  *  MCR  requirement sits at GUI level.
Just edit this line:
https://github.com/cryptonomex/graphene-ui/blob/master/web/app/components/Modal/BorrowModal.jsx#L191

[merivercap]

Hey @EstefanTT,

FYI Here are our parameters for our Smartcoins you may want to consider:

No forced settlement
MCR: 175% (may increase to 200%)
MSSR: 100.1%

I think the above design will protect shorters and encourage trading around the price feed.  Hope this helps. 

(Note: This is for CASH.USD & CASH.BTC.  We had some delays, but we plan to utilize these Smartcoins soon.)

[nmywn]

Those facts come from my margin call experiment:

I confirm that I was still NOT margin called at 176% of collateralization.
Once at 175% I was margin called.
I could not borrow BTWTY with less than 192.5% of collateralization.

So ok.
 

Are you sure that the margin call is not  triggered simply when collateral reach MCR * Price feed ? So currently 175% of the price feed.

I've done calculations based at real numbers in GUI margin dialog box. I Did it under false assumption that docs can be outdated, but working product for sure not. Also ignored fact that dialog box works as described  in outdated docs. In that case:

There is actually no point to require minimum 192% (MCR*MSSR) starting collateral anymore. Before change in shorting rules (with old rules which are given in documentation) it did make sense, because margin call could be triggered at this threshold. Now minimum collateral can be set to MCR.

I must totally agree.

[EstefanTT]

There is actually no point to require minimum 192% (MCR*MSSR) starting collateral anymore. Before change in shorting rules (with old rules which are given in documentation) it did make sense, because margin call could be triggered at this threshold. Now minimum collateral can be set to MCR.

It has a positive point, it prevents someone to set 175% collateral and get margin call 2 seconds after finishing its operation if the price move a little.

When you say that it makes no sense, is there a way to avoid it ?

Because when I'll increase the MSSR to 140%, the collateral asked will be around 250%, which is crazy high. I want to incentive shorters, not the oposite.

[yvv]

There is actually no point to require minimum 192% (MCR*MSSR) starting collateral anymore. Before change in shorting rules (with old rules which are given in documentation) it did make sense, because margin call could be triggered at this threshold. Now minimum collateral can be set to MCR.

[DestBest]

//Current situation
The minimum collateral (which is amount of BTS): Feed price * (1.1 *1.75) * DEBT .
Shorter's  ammount of BTS in deposit must be higher than that. Otherwise margin call is triggered for him.
This means If you w'ont trigger any margin calls your (newX  * newY) outcome can't be higher than current (1.1 *1.75). Increasing "1.1" while decreasing "1.75" looks like the only option.  In other hand, MCR can't go to low if market is unstable and illiquid. Something for something, not much place for changes.

Your margin call trigger price:  COLLATERAL  /  DEBT / (1.1 * 1.75)          //not displayed in dialog box, I think it should be.
current margin call order price: 1.1 * Feed price                                      // current yellow order price, if happen
Your margin call order price:  1.1 * Your margin call trigger price               // your yellow order price in the future.

COLLATERAL is  ammount of deposited BTS

You can check those equations by playing with BTWTY Margin  dialog box.

Are you sure that the margin call is not  triggered simply when collateral reach MCR * Price feed ? So currently 175% of the price feed.

Carefull that the documentation has mistakes !

I observed carefully how DestBest get its order margin called and it seems that he had to put a minimum of 192% to borrow its BTWTY but nothing happened until he reached 175% of collateral. Then, passing at 174% he has been margin call.

Could you confirm it @DestBest ?

Those facts come from my margin call experiment:

I confirm that I was still NOT margin called at 176% of collateralization.
Once at 175% I was margin called.
I could not borrow BTWTY with less than 192.5% of collateralization.

[EstefanTT]

If I set the MSSR at 140% and keep the MCR at 175% :

1) The minimum collateral to borrow a BTWTY will be at 245% ( 140 * 175 ) ?
2) Is there a way to avoid asking for so much collateral ?
3) The margin call will be triggered at 175% of the price  ?
4) I won't trigger any margin call by increasing the MSSR because they will be triggered at 175% of the price feed ?
5) Once someone has less than 175% collateral, he will be margin call and its order will sit at 140% of the price feed ?
6) The price at which the margin call order sit in the market move with the price feed ?

//Current situation
The minimum collateral (which is amount of BTS): Feed price * (1.1 *1.75) * DEBT .
Shorter's  ammount of BTS in deposit must be higher than that. Otherwise margin call is triggered for him.
This means If you w'ont trigger any margin calls your (newX  * newY) outcome can't be higher than current (1.1 *1.75). Increasing "1.1" while decreasing "1.75" looks like the only option.  In other hand, MCR can't go to low if market is unstable and illiquid. Something for something, not much place for changes.

Your margin call trigger price:  COLLATERAL  /  DEBT / (1.1 * 1.75)          //not displayed in dialog box, I think it should be.
current margin call order price: 1.1 * Feed price                                      // current yellow order price, if happen
Your margin call order price:  1.1 * Your margin call trigger price               // your yellow order price in the future.

COLLATERAL is  ammount of deposited BTS

You can check those equations by playing with BTWTY Margin  dialog box.

Are you sure that the margin call is not  triggered simply when collateral reach MCR * Price feed ? So currently 175% of the price feed.

Carefull that the documentation has mistakes !

I observed carefully how DestBest get its order margin called and it seems that he had to put a minimum of 192% to borrow its BTWTY but nothing happened until he reached 175% of collateral. Then, passing at 174% he has been margin call.

Could you confirm it @DestBest ?

[nmywn]

If I set the MSSR at 140% and keep the MCR at 175% :

1) The minimum collateral to borrow a BTWTY will be at 245% ( 140 * 175 ) ?
2) Is there a way to avoid asking for so much collateral ?
3) The margin call will be triggered at 175% of the price  ?
4) I won't trigger any margin call by increasing the MSSR because they will be triggered at 175% of the price feed ?
5) Once someone has less than 175% collateral, he will be margin call and its order will sit at 140% of the price feed ?
6) The price at which the margin call order sit in the market move with the price feed ?

//Current situation
The minimum collateral (which is amount of BTS): Feed price * (1.1 *1.75) * DEBT .
Shorter's  ammount of BTS in deposit must be higher than that. Otherwise margin call is triggered for him.
This means If you w'ont trigger any margin calls your (newX  * newY) outcome can't be higher than current (1.1 *1.75). Increasing "1.1" while decreasing "1.75" looks like the only option.  In other hand, MCR can't go to low if market is unstable and illiquid. Something for something, not much place for changes.

Your margin call trigger price:  COLLATERAL  /  DEBT / (1.1 * 1.75)          //not displayed in dialog box, I think it should be.
current margin call order price: 1.1 * Feed price                                      // current yellow order price, if happen
Your margin call order price:  1.1 * Your margin call trigger price               // your yellow order price in the future.

COLLATERAL is  ammount of deposited BTS

You can check those equations by playing with BTWTY Margin  dialog box.

[天籁]

No he's correct, margin calls only happen once the call price goes below the feed price.

Then documentation should be corrected, because it says that margin call is triggered when the call price is between feed price and SQPP.

The documentation is a copy paste of a write up that I did before BM changed the mechanics to make it so that margin calls are only triggered when the call price goes below the feed price, there's a github issue for this in the graphene repo.

Call price is DEBT * MCR / COLLATERAL.

This is extremely confusing indeed ! If the documentation is not right on certain points, I really don't know where to go to find information to make myself able to take the right decisions.

I need to change this parameter (MSSR) as soon as possible. I don't want to have this market in a dangerous position in the next high volatility event.

Can you confirm a couple more think ? (and correct me if I'm wrong)

If I set the MSSR at 140% and keep the MCR at 175% :

1) The minimum collateral to borrow a BTWTY will be at 245% ( 140 * 175 ) ?
2) Is there a way to avoid asking for so much collateral ?
3) The margin call will be triggered at 175% of the price  ?
4) I won't trigger any margin call by increasing the MSSR because they will be triggered at 175% of the price feed ?
5) Once someone has less than 175% collateral, he will be margin call and its order will sit at 140% of the price feed ?
6) The price at which the margin call order sit in the market move with the price feed ?

3) The margin call will be triggered at 175% of the price  ? Yes
5) Once someone has less than 175% collateral, he will be margin call and its order will sit at 140% of the price feed ? Yes
6) The price at which the margin call order sit in the market move with the price feed ?Yes

[yvv]

No he's correct, margin calls only happen once the call price goes below the feed price.

Then documentation should be corrected, because it says that margin call is triggered when the call price is between feed price and SQPP.

The documentation is a copy paste of a write up that I did before BM changed the mechanics to make it so that margin calls are only triggered when the call price goes below the feed price, there's a github issue for this in the graphene repo.

Call price is DEBT * MCR / COLLATERAL.

This is extremely confusing indeed ! If the documentation is not right on certain points, I really don't know where to go to find information to make myself able to take the right decisions.

I need to change this parameter (MSSR) as soon as possible. I don't want to have this market in a dangerous position in the next high volatility event.

Can you confirm a couple more think ? (and correct me if I'm wrong)

If I set the MSSR at 140% and keep the MCR at 175% :

1) The minimum collateral to borrow a BTWTY will be at 245% ( 140 * 175 ) ?
2) Is there a way to avoid asking for so much collateral ?
3) The margin call will be triggered at 175% of the price  ?
4) I won't trigger any margin call by increasing the MSSR because they will be triggered at 175% of the price feed ?
5) Once someone has less than 175% collateral, he will be margin call and its order will sit at 140% of the price feed ?
6) The price at which the margin call order sit in the market move with the price feed ?

These are right questions and answers should go https://bitshares.org/wallet/#/help

[EstefanTT]

No he's correct, margin calls only happen once the call price goes below the feed price.

Then documentation should be corrected, because it says that margin call is triggered when the call price is between feed price and SQPP.

The documentation is a copy paste of a write up that I did before BM changed the mechanics to make it so that margin calls are only triggered when the call price goes below the feed price, there's a github issue for this in the graphene repo.

Call price is DEBT * MCR / COLLATERAL.

This is extremely confusing indeed ! If the documentation is not right on certain points, I really don't know where to go to find information to make myself able to take the right decisions.

I need to change this parameter (MSSR) as soon as possible. I don't want to have this market in a dangerous position in the next high volatility event.

Can you confirm a couple more think ? (and correct me if I'm wrong)

If I set the MSSR at 140% and keep the MCR at 175% :

1) The minimum collateral to borrow a BTWTY will be at 245% ( 140 * 175 ) ?
2) Is there a way to avoid asking for so much collateral ?
3) The margin call will be triggered at 175% of the price  ?
4) I won't trigger any margin call by increasing the MSSR because they will be triggered at 175% of the price feed ?
5) Once someone has less than 175% collateral, he will be margin call and its order will sit at 140% of the price feed ?
6) The price at which the margin call order sit in the market move with the price feed ?

[DestBest]

[...] This means that MCR>=MSSR.

This looks correct to me.

[yvv]

No he's correct, margin calls only happen once the call price goes below the feed price.

Then documentation should be corrected, because it says that margin call is triggered when the call price is between feed price and SQPP.

The documentation is a copy paste of a write up that I did before BM changed the mechanics to make it so that margin calls are only triggered when the call price goes below the feed price, there's a github issue for this in the graphene repo.

Call price is DEBT * MCR / COLLATERAL.

This all should be clearly explain somewhere. Before this happens, nobody will invest into bitAssets any money. Current documentation on margin calls is inaccurate and confusing. Fixing this should be the worker proposal #1.

[svk]

No he's correct, margin calls only happen once the call price goes below the feed price.

Then documentation should be corrected, because it says that margin call is triggered when the call price is between feed price and SQPP.

The documentation is a copy paste of a write up that I did before BM changed the mechanics to make it so that margin calls are only triggered when the call price goes below the feed price, there's a github issue for this in the graphene repo.

Call price is DEBT * MCR / COLLATERAL.

[yvv]

No he's correct, margin calls only happen once the call price goes below the feed price.

Then documentation should be corrected, because it says that margin call is triggered when the call price is between feed price and SQPP.

[Geneko]

Margin calls only happen once the call price goes below the feed price.

Once you get margin called, the order will execute UP TO the sqp price, think of it as a premium with an upper limit.

Are you sure?

Call price is set:
BorrowedAssetAmmount*feed price*175%>=collateral

I think you're wrong. Margin call wil trigger if your collateral < 192.5% - that's why you cannot open position.

I was convinced too margin call is triggered at:
BorrowedAssetAmmount*feed price*175%*110%>=collateral

[svk]

No he's correct, margin calls only happen once the call price goes below the feed price.

Once you get margin called, the order will execute UP TO the sqp price, think of it as a premium with an upper limit.

[yvv]

I can't see why MCR can't be lower than SQP.

MSSR (aka SQPR) sets the upper limit for price at which margin call can be taken. MCR sets the lower limit for collateral amount. Collateral amount can not be lower than BTS needed to buy back debt at highest price allowed, because otherwise situation is possible when this collateral is not enough. This means that MCR>=MSSR.

[nmywn]

I understand it this way:
SQP ( Squeeze protection price) is 10%, force buying back discount range.
At 175% collateral x 1.1(SQP) =192% to feed price, marging call trigers buying back in 175-192% range, meaning, if for instance in bitBTC market:
BTS/bitBTC feed price is 250,000 or bitBTC/BTS is 0.00000400, everyone who owns 1 bitBTC needs to lock 250,000x192%=480,000 colateral.
If it doesn't have enough , then it is forced to buy back bitBTC in price range of 1.1x250,000=275,000 - 250,000 BTS/bitBTC
or 0.000003636-0.00000400 bitBTC/BTS price range.
As feed price moves down, SQP moves with it through order book.

Yeah, me too.

So in case BTWTY, something extreme like this would do the job:
 SQP aka MSSR  = 1.5
MCR = 1.1 (or even lower)
It will force shorters to cover called positions at whatever price market offer up to 1.5 * feed price.
What if market selling higher than 1.5*feed? It's mean SQP is to low and ASSET is no longer covered, because margin calls cannot be executed.
In my opinion SQP is the thing to mess around.

Edit: This may not work. MCR should not be set lower than MSSR, because in this case the situation is possible when there is not enough collateral to buy margin call order at SQP price. Correct me if I am wrong.

Just thinking.
SQP  must be higher  than average  market  price/feed price ratio -  it is a must  to  execute margin calls.
MCR  can take a role of buffor only if first condition is meet. Otherwise it's  useless. Collateral sits there but can't be really used.
For USD or CNY condition  price / feed < SQP is true

I can't see why MCR can't be lower than SQP.
Lets assume:
my position: 1 ASSET at feed price = 100 BTS
market price: 140 BTS
SQP: 2
MCR: 1
CR= SQP * MCR = 2

So margin call triggers at feed price = 100
I have 200 BTS in colateral deposit. Enough to make an order that will be executed.

But it would maybe inflate market price even more as nothing prevents from manipulation against shorters.

This is how I understand the documentation with the current parameters:

MCR = Minimum Collateral Ration = 175%
MSSR = Maximum Short Squeeze Ratio = 110% (SQPR in the doc)
PF = Price Feed
CR = Collateral Ratio

• You can NOT open a short position with a CR inferior to 192.5% (1.1 * 175%)
• You get margin called when your CR goes to 175%
• Your margin call will sit at 110% of the PF

^Correct me if I'm wrong

I think you're wrong. Margin call wil trigger if your collateral < 192.5% - that's why you cannot open position.

[DestBest]

This is how I understand the documentation with the current parameters:

MCR = Minimum Collateral Ration = 175%
MSSR = Maximum Short Squeeze Ratio = 110% (SQPR in the doc)
PF = Price Feed
CR = Collateral Ratio

• You can NOT open a short position with a CR inferior to 192.5% (1.1 * 175%)
• You get margin called when your CR goes to 175%
• Your margin call will sit at 110% of the PF

^Correct me if I'm wrong

Based on those assumptions and the current state of the market I would recommend:

To set the MSSR to something between 130% and 150%.
You could then lower the MSSR if the market move toward the PF.

If you plan on setting the MCR higher, I would suggest raising the MSSR even higher than 150%.

I suppose that the  current "yellow" order will stay in orderbook even if  SQP will change. Just guessing.
What is wrong with conclusion that BTWTY is currently in the ongoing black swan event.

I am the only "yellow" order currently being margin called, I will close this short as soon as the brainstorming is over or if it gets near black swan price. No worry.

[Geneko]

  I don't understand why holders aren't selling? Holders belive that price will go up, but if this happen they get rect by black swan and as long as i know we don't have mechanism (yet) to cover holders even at loos. So while price of ASSET is rising, after black swan they get nothing or better to say minus 100%.

This is because of individual acting in its own self interest rather then mutual interest. Game theory offers explanations of those scenarios.
Anyway there is shortage in supply of smart coins. Market only reflects that. You can always sell above feed price and you cant buy enough well under feed price.

It will force shorters to cover called positions at whatever price market offer up to 1.5 * feed price.
What if market selling higher than 1.5*feed? It's mean SQP is to low and ASSET is no longer covered, because margin calls cannot be executed.
In my opinion SQP is the thing to mess around.

In my opinion too but I think it should be opposite of that
SQP should be set to 0% and margin call price for instance 300%.
SQP 10% is deviation, which is reflected on the market price, where buy orders goes only to 1/1.1=0.909 feed price (you never know when somebody could be margin called - place sell order 10% bellow feed price) and sell order goes well below feed price accordingly.
Obviously there is something wrong with such market. SQP is artificial incentive, neglecting market property to correct it self.
As for margin call it is: forced sell order - which doesn't have to be filled all at once but should last as long as there are not enough collateral.
It is same as now. Only difference is in that initial marging call buys 10% range of order book and then buys every offer 10% bellow feed price.

[nmywn]

I suppose that the  current "yellow" order will stay in orderbook even if  SQP will change. Just guessing.
What is wrong with conclusion that BTWTY is currently in the ongoing black swan event.

I mean, some conditions is meet and without intervention there is 50% chance  for black swan. that is pretty high.
Why conditions is meet: Because market settings were not adequate to market conditions
How to get out of troubles: If ( settings changes will not affect previous orders ), then
                                                                  market intervention and change settings
                                                      else
                                                                   change settings


One last edit while I'm thinking more about:
  I don't understand why holders aren't selling? Holders belive that price will go up, but if this happen they get rect by black swan and as long as i know we don't have mechanism (yet) to cover holders even at loos. So while price of ASSET is rising, after black swan they get nothing or better to say minus 100%.

[yvv]

I understand it this way:
SQP ( Squeeze protection price) is 10%, force buying back discount range.
At 175% collateral x 1.1(SQP) =192% to feed price, marging call trigers buying back in 175-192% range, meaning, if for instance in bitBTC market:
BTS/bitBTC feed price is 250,000 or bitBTC/BTS is 0.00000400, everyone who owns 1 bitBTC needs to lock 250,000x192%=480,000 colateral.
If it doesn't have enough , then it is forced to buy back bitBTC in price range of 1.1x250,000=275,000 - 250,000 BTS/bitBTC
or 0.000003636-0.00000400 bitBTC/BTS price range.
As feed price moves down, SQP moves with it through order book.

Yeah, me too.

So in case BTWTY, something extreme like this would do the job:
 SQP aka MSSR  = 1.5
MCR = 1.1 (or even lower)
It will force shorters to cover called positions at whatever price market offer up to 1.5 * feed price.
What if market selling higher than 1.5*feed? It's mean SQP is to low and ASSET is no longer covered, because margin calls cannot be executed.
In my opinion SQP is the thing to mess around.

Edit: This may not work. MCR should not be set lower than MSSR, because in this case the situation is possible when there is not enough collateral to buy margin call order at SQP price. Correct me if I am wrong.

[nmywn]

I understand it this way:
SQP ( Squeeze protection price) is 10%, force buying back discount range.
At 175% collateral x 1.1(SQP) =192% to feed price, marging call trigers buying back in 175-192% range, meaning, if for instance in bitBTC market:
BTS/bitBTC feed price is 250,000 or bitBTC/BTS is 0.00000400, everyone who owns 1 bitBTC needs to lock 250,000x192%=480,000 colateral.
If it doesn't have enough , then it is forced to buy back bitBTC in price range of 1.1x250,000=275,000 - 250,000 BTS/bitBTC
or 0.000003636-0.00000400 bitBTC/BTS price range.
As feed price moves down, SQP moves with it through order book.

Yeah, me too.

So in case BTWTY, something extreme like this would do the job:
 SQP aka MSSR  = 1.5
MCR = 1.1 (or even lower)
It will force shorters to cover called positions at whatever price market offer up to 1.5 * feed price.
What if market selling higher than 1.5*feed? It's mean SQP is to low and ASSET is no longer covered, because margin calls cannot be executed.
In my opinion SQP is the thing to mess around.

[Geneko]

I understand it this way:
SQP ( Squeeze protection price) is 10%, force buying back discount range.
At 175% collateral x 1.1(SQP) =192% to feed price, marging call trigers buying back in 175-192% range, meaning, if for instance in bitBTC market:
BTS/bitBTC feed price is 250,000 or bitBTC/BTS is 0.00000400, everyone who owns 1 bitBTC needs to lock 250,000x192%=480,000 colateral.
If it doesn't have enough , then it is forced to buy back bitBTC in price range of 1.1x250,000=275,000 - 250,000 BTS/bitBTC
or 0.000003636-0.00000400 bitBTC/BTS price range.
As feed price moves down, SQP moves with it through order book.

[yvv]

The shorter can't short with 175.1% collateral !!! The minimum is 175% * 110% = 192%

The collateral can go below of 192% as the price moves. When it reach 175% it gets margin call and tries to buy at 110% of the price feed.

This is not how I read it.

At CR=192% call price is equal to SQP price. At CR=175% call price is equal to feed price. Margin call can happen or not anywhere in between these bounds depending on other condition. This is what the docs says. @xeroc, could you please clarify this?

[EstefanTT]

Do you also need to adjust MCR if you change MSSR?

As I understand it, MCR is independent and can remain with the same value.

I mean raising MSSR takes the leverage away from shorters. And some of them will suddenly get into the margin call zone. Changing MSSR from high to low is fine, no harm to nobody, it is changing the other way around that can piss off some people.

After reflexion, I don't think so. They would still need to have less than the MCR (unchanged 175%). The only difference would be the price they would be buying BTWTY when margin call.

[EstefanTT]

All right, I get it this way :

First you have the MCR (minimum collateral ratio) : 175%
Then you have the MSSR (or SQP) : 110%

The shorter can't short with 175.1% collateral !!! The minimum is 175% * 110% = 192%

The collateral can go below of 192% as the price moves. When it reach 175% it gets margin call and tries to buy at 110% of the price feed.

If I would want to set the MSSR (or SQP) at 140%, the shorter will still be margin call at 175% BUT he would need to short (borrow) BTWTY with a minimum of 245% of collateral (140 * 175).

If my explanation is right (I think so), the remaining question would be, wich percentage for the MSSR would be enough to avoid situation creating black swan risks and not too much so shorter doesn't feel like locking too much collateral ... ?

There is also the option to lower the MCR while increasing the MSSR so the collateral needed wouldn't be that different but that could be even more dangerous.

Just for have some numbers to reflect on :
         
110   175   19250   >>> MSSR (SQP) / MCR / Minimum collateral to borrow    (this row is the current one)
120   175   21000   >>> MSSR +10%
130   175   22750   >>> MSSR +20%
140   175   24500   >>> MSSR +30%
150   175   26250   >>> MSSR +40%
160   175   28000   >>> MSSR +50%
         
110   160   17600   >>> current MSSR / MCR at 160%
120   160   19200   >>> MSSR +10% / MCR at 160%
130   160   20800   >>> MSSR +20% / MCR at 160%
140   160   22400   >>> MSSR +30% / MCR at 160%
150   160   24000   >>> MSSR +40% / MCR at 160%
160   160   25600   >>> MSSR +50% / MCR at 160%
         
110   150   16500   >>> current MSSR / MCR at 150%
120   150   18000   >>> MSSR +10% / MCR at 150%
130   150   19500   >>> MSSR +20% / MCR at 150%
140   150   21000   >>> MSSR +30% / MCR at 150%
150   150   22500   >>> MSSR +40% / MCR at 150%
160   150   24000   >>> MSSR +50% / MCR at 150%

[yvv]

And if condition for margin call is met, it does not take the best sell offer event if there is liquidity. I have a hard time to understand why is it done this way.

but in docs:
 The squeeze protection price acts as a price ceiling, meaning the forced margin order will not execute at a very high price in an illiquid market.

That part makes sense. Without this rule, in an illiquid market, there would be no limit to the price the margin call order would buy back the asset.

I understand this part. But why not just take the best offer below SQP?

If I'm not wrong, in the snapshot we can see that it's actually trying to buy the best offer below SQP. The problem is that the SQP is set at 110% and the first sellers are at 144,000BTS/BTWTY (around 150% of the feed price).

But documentation says that this is not always the case. See the last section in

http://docs.bitshares.eu/bitshares/user/dex-margin-mechanics.html

There are other confusing moments too.

[EstefanTT]

And if condition for margin call is met, it does not take the best sell offer event if there is liquidity. I have a hard time to understand why is it done this way.

but in docs:
 The squeeze protection price acts as a price ceiling, meaning the forced margin order will not execute at a very high price in an illiquid market.

That part makes sense. Without this rule, in an illiquid market, there would be no limit to the price the margin call order would buy back the asset.

I understand this part. But why not just take the best offer below SQP?

If I'm not wrong, in the snapshot we can see that it's actually trying to buy the best offer below SQP. The problem is that the SQP is set at 110% and the first sellers are at 144,000BTS/BTWTY (around 150% of the feed price).

[yvv]

And if condition for margin call is met, it does not take the best sell offer event if there is liquidity. I have a hard time to understand why is it done this way.

but in docs:
 The squeeze protection price acts as a price ceiling, meaning the forced margin order will not execute at a very high price in an illiquid market.

That part makes sense. Without this rule, in an illiquid market, there would be no limit to the price the margin call order would buy back the asset.

I understand this part. But why not just take the best offer below SQP?

[EstefanTT]

And if condition for margin call is met, it does not take the best sell offer event if there is liquidity. I have a hard time to understand why is it done this way.

but in docs:
 The squeeze protection price acts as a price ceiling, meaning the forced margin order will not execute at a very high price in an illiquid market.

That part makes sense. Without this rule, in an illiquid market, there would be no limit to the price the margin call order would buy back the asset.

[yvv]

And if condition for margin call is met, it does not take the best sell offer event if there is liquidity. I have a hard time to understand why is it done this way.

but in docs:
 The squeeze protection price acts as a price ceiling, meaning the forced margin order will not execute at a very high price in an illiquid market.

And right below this phrase:

A margin call will occur any time the lowest ask is higher than the call price and lower than the SQPP. This has several consequences, as we will see below. It can create some very strange situations, and also force the margin called orders to “buy high”.

What for??

[nmywn]

And if condition for margin call is met, it does not take the best sell offer event if there is liquidity. I have a hard time to understand why is it done this way.

but in docs:
 The squeeze protection price acts as a price ceiling, meaning the forced margin order will not execute at a very high price in an illiquid market.

[EstefanTT]

Great conversation between the two of you guys !

It has been very instructive and I've reached more or less the same conclusion as you have.

Squeeze Protection Price (SQPR) should be set higher so that margin call orders are executed against part of the order book or at very least, sits near the first seller.
Keep a low maintenance collateral ratio (MCR) in order to allow a higher degree of leverage.

I'm not sure you are allowed to set these two parameters independently.

The doc has been written by @xeroc I think, maybe he could enlight us with its knowledge.

I mean raising MSSR takes the leverage away from shorters. And some of them will suddenly get into the margin call zone. Changing MSSR from high to low is fine, no harm to nobody, it is changing the other way around that can piss off some people.

I can announce the change and let shorters adjust their collateral during days before I actually change it. Another way to do it would be to increase it by 5% every x days until reaching the new value.

Do you also need to adjust MCR if you change MSSR?

Good question ... I'm not sure the doc answer this question .. Xeroc ?

[Chronos]

It was @xeroc, I believe. I'd also be interested in the opinion of @JonnyBitcoin.

[yvv]

Who wrote that documentation on margin calls? It would be nice if they give their expert advice on what is better to do in this case.

[Chronos]

I think I understand. 

So I'm of the opinion that the Squeeze Protection Price (SQPR) be set to 500% so that margin call orders are executed against the entire order book. Scary for the shorts, but avoids a black swan. Watch your collateral.

I like keeping a low maintenance collateral ratio (MCR) in order to allow a higher degree of leverage, if desired.

[yvv]

This is a hell confusing. Margin call is triggered when call price falls into interval between feed price and short squeeze protection price (SQP). Since the call price does not depend on either boundary, it can take any values outside this interval, on either side.  And if condition for margin call is met, it does not take the best sell offer event if there is liquidity. I have a hard time to understand why is it done this way.

http://docs.bitshares.eu/bitshares/user/dex-margin-mechanics.html

Edit: By the way, chart in the OP shows that the lowest call price is below the feed price, but margin call is still executed at SQP price. I see a contradiction to what docs say in this. Any clarifications wtf?

[Chronos]

Wait, maybe I'm confused. What is MSSR and what is MCR? I thought I was recommending to allow margin liquidations to walk the entire order book instead of get stuck (as in the OP screenshot).

[yvv]

I mean raising MSSR takes the leverage away from shorters. And some of them will suddenly get into the margin call zone. Changing MSSR from high to low is fine, no harm to nobody, it is changing the other way around that can piss off some people.

Do you also need to adjust MCR if you change MSSR?

[Chronos]

True. But you aren't reducing your leverage ratio if your short is about to be called. It's already changed due to the market move. You're simply maintaining your leverage to compensate for loss of value in underlying asset.

You make good points, though. Especially when you say that BTS lacks incentives for shorts.

[yvv]

IMO, it should be a huge number instead, because shorts can always add collateral if they are paying attention.

Yes, they can, but they lose leverage advantage in this case. When you buy CFD at traditional market, you deposit $5K and you can trade $50K worth of asset. This is what attracts speculators, high risk and high profits. In bitshares, 2x collateral is bad enough for shorters. For each $1 invested you can issue no more than 1 bitUSD. To be comparable with traditional CFDs, MPA collateral ratio should be 1.2 or less (you could short 5 bitUSD per each USD invested in this case). Of course, such a low collateral would be too risky in shallow BTS market, but it is still good to keep it as low as possible.  Bitshares lacks incentives to shorters and shorters are needed for liquidity, since MPAs are created into existence by shorting.

[Chronos]

Well, I've never held a large short position in a smartcoin, so take my opinion with a grain of salt. I still think a low MSSR (which causes margin call orders to sit on the book, as in this market today) is just a crutch for shorts, at the expense of market stability. IMO, it should be a huge number instead, because shorts can always add collateral if they are paying attention.

I could be wrong. Would you like me to short some BTWTY and have a taste of my own medicine? 

[yvv]

One of the problems I see is that right now, with bittwenty growing fast there is a large premium. When it will have a price correction or BTS price will rise, this premium will shrink and 150% will maybe be way too much.

Exactly. High collateral makes a loan more secure, but less attractive to shorters. High premium is a temporary thing which will eventually be gone when liquidity spins up. Is there some temporary solution to deal with black swan on a new market? How other MPAs were spun up?

[EstefanTT]

My opinion? Shorts need to watch their collateral ratios. Set it to 500% MSSR to keep the market liquid and safe for all!

What do you think about the comment from Ivv ?

"The problem is that when you increase MSSR, you increase a safe collateral ratio too, which is equal to MSSR*MCR. This may fix the margin call problem in short term, but it may have negative impact in long term, because collateral ratio is what determines leverage (lower CR = higher leverage). Higher leverage (lower CR) makes shorting more attractive. This issue needs some good brainstorming before taking any actions."

With an increase to 150% it would be enough to have the order sitting around the actual price and it would end up filled quickly. From 110% to 150% the collateral increased (leverage decrease) is probably worth the overall security of the market. At least until liquidity makes the price going down closer to the price feed.

One of the problems I see is that right now, with bittwenty growing fast there is a large premium. When it will have a price correction or BTS price will rise, this premium will shrink and 150% will maybe be way too much.

[Chronos]

My opinion? Shorts need to watch their collateral ratios. Set it to 500% MSSR to keep the market liquid and safe for all!

[EstefanTT]

Hello everyone,

The BTWTY market has been growing nicely these last first days of its existence. It still a baby market but I intended to keep it that way for its firsts steps into the world. As soon as I'll feel comfortable enough with the settings, I'll start promoting it in a more intensive and extended way.

With that said, the market just had its first margin called order and that brings an important question. You can see it in the next snapshot:



This brainstorm will probably be useful in the future for other BitShares smartcoins that will trade with an important premium.

The "problem" is the next one. The margin call order is sitting way behind the first buyers. If the market keeps trading BTWTY that high compare to the price feed, this order will never be filled.
In that case, if the price of BTWTY keep growing and BTS remain stable, a black swan event will be triggered at some point. We are still far from this possibility but something has to be done in order to diminish the probability of such happening.

My first reaction was to consider increasing the MSSR. It is at 110% at the moment.

Yvv from this forum share with me the fact that :

"The problem is that when you increase MSSR, you increase a safe collateral ratio too, which is equal to MSSR*MCR. This may fix the margin call problem in short term, but it may have negative impact in long term, because collateral ratio is what determines leverage (lower CR = higher leverage). Higher leverage (lower CR) makes shorting more attractive. This issue needs some good brainstorming before taking any actions."

The margin call mechanism is complex and sometimes confusing. I would love to have you opinion on the situation.