I know this is not the point of the article. But. The explanation of margin is totally bogus and misleading. It's because of articles like this that people get burnt on using margin.
All margin has maintenance requirements. And because of that you can get margin called by a 1% drop even if you just use less than 100% margin. So using an example like this misinforms people.
The reality of margin maintenance never gets addressed in the media which us a disservice to the public.
Hi Johan! I'm sorry but I have read your comment several times and I'm not sure what's "bogus" about my explanation of margin. In the article I state that "If the value of Bitcoin dropped, FTX would ask the customer to deposit additional collateral." That's a reference to margin maintenance requirements, right? Can you provide more detail about what was inadequate about my explanation? Thanks.
I understand it makes it quicker and easier to explain the risk, but I find that most people don't understand the concept of margin maintenance that can lead people to think using 50% margin is fine. They would think they would not get margin called until the equity drop by 50%. So people load up too much and aren't prepared for the call.
Again. I know this is not the point of the article. Sorry to digress but I have an axe to grind about margin and people not properly being informed about it.
One has to wonder if his legal counsel is groaning. SBF ought to exercise his right to not discuss this, as everything I have read about his interviews, his verbal diarrhea to members of the press, and now his sub stack (that I will not subscribe to) seems to be leaving an easy to follow trail for the investigators.
I know this is not the point of the article. But. The explanation of margin is totally bogus and misleading. It's because of articles like this that people get burnt on using margin.
All margin has maintenance requirements. And because of that you can get margin called by a 1% drop even if you just use less than 100% margin. So using an example like this misinforms people.
The reality of margin maintenance never gets addressed in the media which us a disservice to the public.
Hi Johan! I'm sorry but I have read your comment several times and I'm not sure what's "bogus" about my explanation of margin. In the article I state that "If the value of Bitcoin dropped, FTX would ask the customer to deposit additional collateral." That's a reference to margin maintenance requirements, right? Can you provide more detail about what was inadequate about my explanation? Thanks.
Hi Tim. The example of using 100% margin.
I understand it makes it quicker and easier to explain the risk, but I find that most people don't understand the concept of margin maintenance that can lead people to think using 50% margin is fine. They would think they would not get margin called until the equity drop by 50%. So people load up too much and aren't prepared for the call.
Again. I know this is not the point of the article. Sorry to digress but I have an axe to grind about margin and people not properly being informed about it.
One has to wonder if his legal counsel is groaning. SBF ought to exercise his right to not discuss this, as everything I have read about his interviews, his verbal diarrhea to members of the press, and now his sub stack (that I will not subscribe to) seems to be leaving an easy to follow trail for the investigators.
Flooding the zone is not likely to help here.