Risk Management
Guide on how to edit collateral and stoploss and take profit positions.
What is Collateral Management?
Collateral management is the process of handling assets to take care of your leveraged positions. It can come in a variety of ways which Gambit supports.
Margin Calls and Maintenance: In trading scenarios, especially those involving leverage, the market value fluctuates in directions you did not intend. If the market moves against the trader, the collateral might no longer cover the credit risk for the borrowed funds used in the leveraged trade. This situation triggers a margin call(Liquidation), where traders add funds to meet the margin requirements and keep their positions open or to lose the collateral and your position.
Decreased Risk or Favorable Movements: Conversely, if the market moves favorably, meaning the value of the position increases, the risk to the broker decreases as the trade becomes less leveraged relative to the collateral. In such a case, the amount of USDC held as collateral might exceed the required margin. Traders might withdraw the excess funds for other uses, such as reinvesting or retaining liquidity, as long as the remaining amount meets the margin requirements.
Closing a Position: When a trader decides to close a leveraged position, and if the trade has remained profitable or at least not incurred losses beyond the initial collateral, they can withdraw the USD collateral deposited initially to secure trader's current position.
Collateral Adjustment in Gambit
On Gambit, users are allowed to make changes to the position's collateral after entering into a position. That is, users are able to add or decrease the position's collateral favorably. The ability to adjust collateral on Gambit provides significant flexibility and strategic control over one's positions, enabling more nuanced financial management and response to market fluctuations. Here's how it works and the benefits it confers:
Responsive to Market Conditions: By permitting the adjustment of collateral, Gambit allows users to respond in real-time to market changes. If a position starts to move against the user, they can add collateral to reduce the likelihood of a margin call or liquidation. Conversely, if the market moves favorably, users might choose to withdraw excess collateral, freeing up funds for other trades or investments.
Strategic Financial Planning: This feature enables users to engage in more sophisticated risk management strategies. Traders can adjust exposure to risk by managing the collateral in their positions, rather than having to fully close positions or open new ones to adapt to changing strategies or market conditions.
Efficiency and Convenience: The ability to alter collateral without needing to close a position streamlines operations, saving time and potentially reducing transaction fees. Users can maintain market stance without the inconvenience of exiting and re-entering positions, a process that can often entail additional costs and risks.
Potential for Leverage Adjustment: For traders using leverage, the option to modify collateral can imply indirect control over the leverage level of positions. By adding collateral, they can effectively reduce leverage, decreasing potential liquidation risks. Reducing collateral, provided it's within the limits of the platform's requirements, could increase leverage, potentially amplifying returns, albeit with increased risk.
Improved Risk Management: Overall, collateral adjustment is an advanced risk management tool. By continuously optimizing collateral levels, traders can strive for the ideal balance between risk and reward based on the user's risk tolerance and market outlook.
However, while the adjustment of collateral offers various strategic advantages, it requires a solid understanding of market conditions and risk management principles. Traders should be mindful of the potential risks and make informed decisions based on comprehensive analysis and risk assessment strategies. Adding or reducing collateral can have significant financial implications, and as with all trading strategies, it's crucial to avoid overexposure and to implement prudent risk management practices.
Press the [Liq/SL] part of the position you wish to change the collateral.
Press on Adjust Margin Position button
Press either "Increase" or "Decrease", and enter the amount you wish to add/reduce to your collateral.
Press "Confirm".
SL(Stop Loss) and TP(Take Profit) Editing in Gambit
On Gambit you can edit your stoploss and take profit you have initally set up as you entered your position. SL (Stop Loss) and TP (Take Profit) are integral elements of trading that contribute to a comprehensive risk management strategy.
Press the [Liq/SL] part of the position you wish to change the collateral.
Enter the price you wish to set your "Stop Loss" or "Take Profit".
Press "Adjust Margin Position" to finialize your actions.
These tools are designed to help traders mitigate losses and lock in profits at predefined levels. Gambit's functionality goes a step further by allowing users to edit these values after a position has been opened.
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