
Coinbase has added margin trading to its Bitcoin exchange - rbanffy
https://techcrunch.com/2017/03/21/coinbase-has-added-margin-trading-to-its-bitcoin-exchange/?ncid=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29&sr_share=twitter
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chollida1
Just a few random thoughts after looking through their docs.

They keep talking about a "margin order", though they also stress that this
order type is basically the same as a limit order.

I'm assuming they created a new order type so the trader is explicitly aware
that they are using margin?

> Each time a Trader places a valid Margin Order that would exceed their
> Available Balance, funding is automatically provided for the required amount
> (Margin Funding).

Interesting that each "margin" order you put out counts towards your margin
usage, rather than your fills. I mean, they are both prime broker and
exchange, they could cancel out existing margin orders if you hit your margin
limit.

I'm guessing this is a nod to simplicity rather than correctness in this case,
Seems like it would make layering orders tougher, though maybe its one of
those cases that wouldn't be hit in practice due to who they are currently
allowing to trade on margin?

> Each Margin Funding must be Settled within 27 days and 22 hours.

That's a weird time frame, just short of the shortest month. This is quite a
bit different from typical margin trading that most institutions have with
their prime brokers. It's odd that it has an expiry at all. I'm guessing its
because they aren't currently charging any margin interest?

> When a portion of your margin funding expires, a market order will be
> executed to settle only the amount that has expired, and the size of your
> position will be reduced.

Ouch, so if this is marketed towards institutional investors and you put on a
say $1,000,000 position, coinbase will cross the spread on your behalf with a
market order for the full amount? You can say buyer beware and maybe they'll
have some sort of daily and then hourly email reminder but with out knowing
more this seems absolutely terrible.

> This is the default behavior when closing a position. When you realize
> profit / loss, the opposing market order will be executed for the entire
> size of your margin position.

They can't really mean market order can they? I mean this is 2017, no one
should be using a market order for any purpose at all. If this is indeed the
default way that coinbase wants you to close a position, then I' going to give
them the benefit of the doubt and say that I must just be missing something
because nobody, should be sending market order.....ever.

Requirements for getting a margin account.

[https://support.gdax.com/customer/portal/articles/2725812-wh...](https://support.gdax.com/customer/portal/articles/2725812-what-
is-an-eligible-contract-participant-ecp-)

~~~
frisco
Why should no one ever use market orders?

~~~
vidarh
Imagine you place your order just as "something" happens to make the best
price it can match move dramatically.

If you truly want to sell or buy no matter the price, then sure, use a market
order. But most of the time there will be a price that is too low/too high for
you to want the order to execute.

This is _especially_ an issue for things like Bitcoin which can be extremely
volatile, and where many of the exchanges have small enough volumes that they
can suffer significantly more volatility than Bitcoin as a whole.

~~~
iamdave
_If you truly want to sell or buy no matter the price, then sure, use a market
order. But most of the time there will be a price that is too low /too high
for you to want the order to execute._

Well...yes, exactly; bordering on a flat out "duh". Isn't this kind of the
entire _point_ of a market order? If you're convinced this is the price you're
going to enter a position at, you're able to do so; otherwise you'd open a
LIMIT order if the price is too low/too high for whatever trade strategy
you're utilizing with margin trading. That's the entire reason market orders
exist as another commenter points out.

That doesn't mean no one should _ever_ use market orders. Traders have
different risk tolerances that inform their trade decisions; saying "no one
should do it ever" seems like leaving an awful lot of nuance about currency
(and other securities) strategy and price action on the table.

If I've misunderstood your point, I'm open to a correction here, but I don't
think what you've replied with is a wholly convincing argument on its face.

~~~
vidarh
> If you're convinced this is the price you're going to enter a position at,
> you're able to do so;

This is a prime examply of why to give the advice to never use a market order.
This is _exactly_ the type of situation where a limit order is the right
choice rather than a market order, as with the market order you _don 't_ know
that this is the price you'll enter the position at.

If you enter a market order based on that thinking, you risk losing a lot of
money, because you are making an unjustified assumption that the price
can't/won't move all that much before it is filled.

It's unlikely you're looking at the market price and think "if I place that
market order now, I might end up selling at 30% below that/buying at 30% above
that". But that can happen. On crypto exchanges, not only can it happen, but
e.g. on smaller exchanges trading lesser coins against BTC it's not at all
unusual for it to happen (e.g. you have have coins fluctuating up and down
between 3-4 satoshi).

Saying you should _never_ do it is hyperbole, but the cases where there is a
good reason to not enter a limit order instead are exceedingly few. Most of
the times when people use market orders it tends to be lack of a trading
strategy or lacking tools (panicked issuing of market order to account for
lack of having suitable orders in place to protect you) or lack of
understanding of the risk.

I'd argue that the vast majority of the time, if you find yourself thinking
you need a market order, maybe you do need it _then and there_ in an urgent
rush, but if so you should treat it as a warning sign that you may be doing
something wrong (e.g. you don't have the right tools or strategy in place to
protect you against risks) and re-evaluate what you're doing.

------
koolba
> While the full list is here, the requirements include things like being a
> corporation with a net worth exceeding $1,000,000 and trading on margin in
> order to hedge risks associated with your business. Individuals need to have
> a minimum of $5,000,000 invested on a discretionary basis in order to be
> allowed to trade on margin.

Holy cow those are are some steep requirements. For contrast to trade on
margin in traditional brokerage account requires only a couple thousand
dollars (for up to 2x margin on most securities). Intra day 4x margin usually
requires $25K+.

If they are attracting customers to trade on their platform with that level of
disposable assets then color me impressed.

~~~
iamdave
Heck, I'm pretty sure you can open a forex trade account with a retail broker
for as little as $25 if you're fine trading nanolots and making fractions of a
penny every trade.

~~~
koolba
I'm not familiar with the margin rules for forex but given how shady that
business is (seriously it's just a bunch of sharks fleecing anybody they can
get their hands on), I wouldn't be surprised if they give you leverage at such
small amounts.

For a traditional brokerage account though the minimums are generally larger.
Also, there are specific rules as to how much margin they can provide on a per
security basis based on whether it's a actively traded, pink sheets, etc.

~~~
iamdave
_given how shady that business is (seriously it 's just a bunch of sharks
fleecing anybody they can get their hands on)_

There's definitely sharks fleecing people in the sense of "buy my automated
trading bot!" or "pay $500 for my class and I'll get you pips for days!" or
"Pay me $300 for this strategy that will win every time" but forex inherently
isn't shady. It's no more shady for an individual trader than stocks, bonds
and ETFs as you're legitimately and singularly acting on changes in the value
of currencies.

This, and there are numerous respectable retail brokers who aren't in the game
of anything other than opening/closing positions for their clients. The nature
of the security makes it a lot easier for properly registered entities to
create markets where trades can happen sans the sharks you're mentioning.

The idea that "forex is for scammers" is losing a lot of validity and it's an
attitude that I-a guy who trades with his spare/drinking money-wish would go
away entirely. At the end of the day, currency trading can be just as risky
and loss-worthy as trading stocks to someone who A) doesn't know what they're
doing B) is excessively risky with their positions C) all of the above.

~~~
TorKlingberg
There is a difference in that with stocks you can go long and reasonably
expect a couple percent return in a year. Most people, even those who trade a
lot are long overall. In forex you have to beat the market to make _anything_.
It is only rational to trade forex if you have a good reason to believe you
can outsmart the market, or if you are hedging currency risk that you already
had for other reasons.

------
confiscate
[https://news.ycombinator.com/item?id=13925803](https://news.ycombinator.com/item?id=13925803)

