Trading Protocol Update: Margin Interest on Leverage

Author Image Denis Bykov

Denis Bykov

Morpher Trading Protocol Update March 2021

Next week we are releasing a big update to the Morpher trading protocol. The update will include stop loss / take profit functionality, an improved trading terminal, and new margin costs for leveraged positions.

Interest Rate for Leveraged Positions

We’re introducing margin interest: an interest rate fee on leveraged positions. All leveraged positions will incur a daily, non-compounding fee of 0.015% net exposure.

How It Works

Since the interest rate is added daily, holding leveraged positions for longer results in paying more total interest. Similarly, since the rate is based on net exposure, positions with bigger leverage pay more interest.

Let’s walk through an example: you buy AAPL stock with a leverage of 2, and sell your position after one year. In that one year, you would have accumulated 5.6% in interest. Meanwhile Apple was up 68% last year.

  • Your returns with 2x leverage: (2 * 68%) – 5.6% = 130%
  • Your returns with 3x leverage: (3 * 68%) – 11.2% = 193%
  • Your returns with no leverage: 68%

Negative Balance Protection

As with all Morpher trades, you can never lose more than what you invest. The margin interest is deducted from the value of your position. You do not need to maintain any balance to cover the margin interest, and if your position liquidates their are no fees collected.

Existing Positions

The margin interest will also apply to all existing leveraged positions. The good news is that the interest will only be charged starting from the day we release the update. If you’ve had a leveraged position open for one month or one year will not matter, it only starts counting after March 15th.

Why Add Margin Interest?

In short, to better reflect real trading. Traditional leveraged trading is made possible through the borrowing of funds from a broker. This act of borrowing will usually cost the borrower an interest rate, made payable to the lender.

As you know, Morpher does things a little bit differently, in that your leverage is made possible through the smart contracts that act as your counterparties. The addition of this interest rate is a means by which we aim to emulate some of the trading mechanics that are an intrinsic part of trading, such as spreads.

Our goal is to reflect real world trading dynamics while still giving traders an unfair advantage to beat the markets.

Effect on Tokenomics

While brokers earn from margin fees, Morpher does not. The MPH collected from margin interest is automatically burned by the smart contracts, thus lowering token supply. That’s deflationary for MPH and should generally increase value for all existing token holders.

With better supply stability comes better price stability. This brings more value to everyone using MPH.

When is the update happening?

The protocol update with margin interest will be released on March 15th, 2021.

As promised earlier, this update will also bring stop loss and take profit functionality. In our continued effort to democratize trading, we’ve re-evaluated the trading terminal and made some key improvements for ease of use.

One of these is that closing positions will now be specified in percent % rather than amount. This brings greater control over your trading so that you can maintain the desired level of exposure to each market.