Brainstorm - Bit20 MSSR / margin call

[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.