Margin Trading

Margin trading is when you buy and sell assets with borrowed money

Buying on margin is when you take out a loan to buy fractions. This process is also called leveraging your position. Margin basically means collateral. When you buy on margin, the fractions you buy are kept as collateral until you pay off the loan. The concept is similar to taking out a mortgage to buy a house - the bank keeps the house as collateral until the day you pay off the loan in full.

Why would you buy fractions on margin? Well, either you don't have enough money for the entire purchase, or you want to magnify your gains. So how does it work?

Let's say Frank wants to buy DeGods fractions, which is currently trading at $100, and buy it on margin. He opens his position on GigaDEX with the amount of 70%. This means that Frank has to put up and maintain 70% of the price himself, and GigaDEX will put up the remainder. Since the fractions price is currently at $100, Frank will have to pay $70 for the fractions and GigaDAO will put in the remaining $30.

Let's say that DeGods rises to $200 and Frank is happy with the return. GigaDEX will sell the fractions for $200, redeem the loan of $30 and give the remaining $170 back to Frank. Great - Frank made a profit of $100. Since he only put in $70.

Short Position - Is when a trader borrows an asset and then sells it at the current market price. The trader is then betting on the price of the asset to go down. If the price does go down, the trader can then buy back the asset at a lower price and profit from the difference. Long Position - Is a type of trade in which a trader borrows an asset with the expectation that its price will rise. This means that the trader is taking a “long” position on the cryptocurrency, hoping to make a profit when they later sell it at a higher price.

Leverage - Leverage is a financial instrument or tool that allows traders to borrow money to increase their buying power, enabling them to make larger trades than they would otherwise be able to make with their own available funds. This type of leverage is similar to what is available on traditional exchanges.

Liquidation - Liquidation is the term used to describe the process of automatically closing out a user's position in a trade which has gone against them and resulted in a loss. When a user's margin position is no longer able to cover the losses, the exchange will automatically liquidate the position and the user will lose their entire margin balance. Liquidation on a DEX is an automated process that happens in real-time and is designed to protect the exchange and its users from significant losses due to market forces.