Brainstorm - Bit20 MSSR / margin call

[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.