The risks are low due to the design of our underlying risk-limiting engine. We have taken the following steps to prevent funding providers from losing money:
- If a trader's position is at a loss, he will cover the loss with funds in his Margin Wallet. The funds in the Margin Wallet serve as collateral only.
- A trader's position is force liquidated when the net value of his account falls below the maintenance margin.
In the event, and this has never happened, the market would drop (or rise) so fast that the forced liquidations cannot be matched quickly enough to bids/asks in the order book, we have algorithms in place to slow down liquidation to prevent the situation from spinning out of control. In theory, these measures could still cause margin traders to lose more than the funds they hold in their account as collateral. Up to a certain point, we will cover the losses from our own reserves; however, if the price would change so dramatically that the majority of all margin positions would drop below zero, losses eventually will be shared with margin funding providers. This has never happened in the existence of our platform, but in theory, it could happen.
Providing liquidity in margin funding is not risk-free; however, interest rates are typically far higher than achievable through a typical savings account. In the end, it's up to the user to weigh the risk and gains.
