dikaios1517 on Nostr: That's exactly it. In the case of a long position, they put up collateral in order to ...
That's exactly it.
In the case of a long position, they put up collateral in order to borrow dollars to buy #Bitcoin, betting on the price to go up so they can close their position and pay back what they borrowed, keeping the profit. If the price goes down far enough instead, their collateral is automatically sold to cover their position and they lose their collateral.
In the case of a short position, it is the opposite. They put up collateral in order to borrow Bitcoin to sell it, betting on the price to go down so they can buy back in at the lower price and pay back what they borrowed, keeping the profit. If the price goes up far enough instead, their collateral is automatically sold to cover their position and they lose their collateral.
What's even worse is, if the price is going the opposite direction of what they wanted too fast, they could be required to pay back additional losses in the value of their collateral out of pocket.
In the case of a long position, they put up collateral in order to borrow dollars to buy #Bitcoin, betting on the price to go up so they can close their position and pay back what they borrowed, keeping the profit. If the price goes down far enough instead, their collateral is automatically sold to cover their position and they lose their collateral.
In the case of a short position, it is the opposite. They put up collateral in order to borrow Bitcoin to sell it, betting on the price to go down so they can buy back in at the lower price and pay back what they borrowed, keeping the profit. If the price goes up far enough instead, their collateral is automatically sold to cover their position and they lose their collateral.
What's even worse is, if the price is going the opposite direction of what they wanted too fast, they could be required to pay back additional losses in the value of their collateral out of pocket.