Thank you so much for this article, it made everything so much clearer for me. This article is also gonna be a tool for me to explain it to others. I was wondering can you please create an article or perhaps answer my reply with regards to margin calls? I still don't understand the way margin calling works with bitassets.
Like if I borrowed and sold 1 Hero at 1000 bts/hero at 3x collateral. Then let's say BTS went up and lowered the price to 500 bts/hero. Let's say I did not decide to sell at that point, however the next few weeks BTS went down and HERO price went up to let's say 750 bts/hero. I want to buy back but there were no takers at 750, the next one is around 1000. My question is, what would happen if I strategize to decrease my collateral to a point where I can get margin called at 750, perhaps at 1.5x. My thinking here is I'd rather get margin called than buyback at a loss if BTS price continues to go down.
My question is how does margin call works in this situation? How much will I lose? If my account gets margin called, am I essentially gonna eliminate my debt at the price point of 750bts/hero? Thereby giving me a 250bts profit still?
What happens when an debt gets margin called? I really don't get it still. Can you please explain it in an analogy that a 5 year old can understand?
Thank you in advance.
If you believe that BTS will come back, simply increase your collateral ratio as the price of BTS falls. There's no reason to allow a margin call. It's the same as selling low, and that's a bad strategy. Decide on your strategy first. You either believe in BTS long term or you don't. You could consider borrowing another HERO if the price drops down again. This would allow you to sell a second HERO at an even higher value. Then place a buy order for that second hero at the same value as your first trade.
wow, this is a nice strategy. Thank you so much for this advise :)
So I'm not getting this at all yet. Let's say I borrow a Hero at 1000 BTS and sell it. If the value of BTS increases to the point that it only takes 500 BTS to buy the Hero back haven't I lost 500 BTS? What am I missing here? Help me wrap my head around this. Maybe I need more coffee. lol
Never mind. I figured it out. Definitely takes a few read throughs and just trying it out with a low amount.