At present, centralized exchanges which facilitate margin trading are mired in the traditional challenges of establishing trust, preventing fraud and enhancing transparency. The centralized exchanges have been left to handle collateral management and ensure that traders do not default. Essentially, these exchanges have opted to bypass blockchain strengths which are premised on decentralization, perhaps as a minimization risk to the protection and global anonymity. These exchanges have had a fair share of their problems.
In a centralized exchange, borrowing funds for trading require a trader to manually place a margin call which the exchange makes to the trader. Ideally, the maintenance margin helps to rebalance the margin account. CoVEX’s Margin trading platform will allow users to trade using cryptos borrowed from other traders which will be supported by collateral funds. These funds will be computed based on the borrower’s token share and portfolio. Margin traders will be allowed to open long and short positions by borrowing money which they can either buy or sell. Later on, traders will close the positions by settling the loans. Obviously, the lender receives interest from the margin trader as an incentive for lending funds while CoVEX retains a percentage for providing a platform lender.