To be completely honest I haven't understand completely Bitshares X, BitUSD etc...I believe in all I3 projects and in everything you guys are trying to do so I thought I could give below an example from my experience that might be able to solve some market manupulation issues and properly cover margin calls...You can if you wish so apply the below in what you are trying to do.
I will describe LCH (London Clearing House). LCH is a clearing house that traders use as counterpary (in our case Bitshares X) in order to trade various derivatives. What LCH does as clearing house is to get all the orders and match them. Settlement is done on a daily basis and LCH requires an initial margin
(collateral) for all the short trades in order to cover potential volatility risks and counterparties defaults. I believe that the concept of initial margin
should be applied in Bitshares X. Depending on the future expiry date,the type of contract, the type of market, market volatility etc. a multiplier factor is applied on amount of contract.
Below is their website for further reading. Have a look if you wish under risk management sections http://www.lchclearnet.com/risk_management/http://www.lchclearnet.com/freight/ffas/
As an example let's make the below assumptions.
1 contact = 1 BTC
DAY 1 BTC = $1,000
No expiry date
I am selling 1 contract
How settlement is done:
Opening balance: $0
Future value: $0
Initial Margin: -$200
Closed Balance: -$200 (margin call). I have to pay the initial margin
Day 2: (Lets assume 1 BTC = $1,100)
Opening Balance: $200 (I paid the initial margin)
Future value: -$100 (since I am short @ $1,000 and the price is $1,100)
Initial margin: -$200
Closed balance: -$100 (margin call)
Day 3 (Lets's assume 1 BTC = 600)
Opening balance: $300
Future value: $400
Initial margin: -$200
Closed balance: $500
If I decide to close my position I should get back $500 + $200 ( initial margin collateral) = $700. Since I have paid in total $300 in margin calls I made a profit of $400 ($1,000 original contract - $600 contract at expiry)
With this way Bitshares X will be secure from market manupulations (since they can apply high initial margin requirements per short contract. The amount to be charged should not change every day but rather you need to find a model that applies margin requirements for at least a month. When trading "options contracts" this model gets much more complicated. LCH in order to calculate the initial margin requirements runs 16 different scenarios on the parameters associated with the open contracts of each trader. LCH calculates margin requirements using an application called London Span. You can download it from their website and play around the different markets. (If you do try it, when entering an option contract with strike $10,000 you should enter $100,000) for the collateral calculation to be correct.
Bitshares X must become LCH for cryptocurrencies. At least this is how I understand it, correct me if I am wrong. Before the financial crisis companies used to trade OTC between them. Now they all trade using clearing houses. Bitshares X must apply a fair initial margin requirement depending on the product and market. The calculation should be clear to understand how it is calculated from anyone and should be kept by Bitsares X as collateral if someone defaults. Bitshares X should be our counterpary exposure. At least this is how I have understood and imagined the future of Bitshares X.
I hope I helped. Most probably not as you already know these things but I thought to share just in case...
If you want to know more how LCH calculates collateral requirements and I can help more, please let me know.
If I helped and want to tip I would be greatfull. Unfortunately I have a very small stake in PTS - AGS and I am trying to increase my shareholding.
My PTS address:Pc1Xpa12JgbFPAZS9qLdHMkEsnqzXWpdbQ
Kehotee Key: 6gxDKJFw7MsCuHeQwArCQhfD6MnkHW9D7hfrUUeuFHos6oHSiL
P.S. I hope that my Kehotee is valid (I see it still as unregistered yellow although I have submitted the form on the site long time ago). It would be also nice if someone started a communication with Kehottee with me as I feel I have purchased a software that I am not using...