A Margin System allows traders to borrow funds to increase their exposure to an asset, using their existing capital as collateral. This amplifies both potential gains and losses. In digital asset trading, margin systems enable participants to take larger positions than their account balance would otherwise permit. It involves maintaining a minimum equity level to cover potential losses. This trading mechanism is common on centralized and some decentralized exchanges.
Context
News frequently reports on the volatility and associated risks of margin trading in cryptocurrency markets, especially during periods of significant price swings. Regulatory bodies often scrutinize margin systems due to the increased leverage and potential for rapid liquidations, which can impact market stability. The availability and terms of margin systems are key features that attract certain types of traders to digital asset platforms.
The permissionless perpetuals primitive democratizes derivatives market creation, exponentially expanding the DEX's asset long-tail and accelerating its volume flywheel.
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