Skip to main content

Trader Risks

Traders interact with the protocol using stablecoins to collateralize their positions. Positions can be long or short with leverage on the markets available in the protocol. By interacting with the protocol, they inherit the general risks mentioned in the dedicated section, in addition to those described in this paragraph.

  1. Market PnL Exposure: By opening leveraged long or short positions, traders expose themselves to market risk and may incur negative PnL, which will be deducted from their collateral.
  2. Liquidation Risk: When the margin ratio falls below the Maintenance Margin, it means that the collateral is no longer sufficient to cover the position according to the rules of the protocol. The position becomes partially or fully liquidable. The trader therefore loses part or all of the position, and the collateral is reduced by the PnL associated with that operation. The PnL, beyond reflecting the market loss, also accounts for the percentage retained by the liquidator for providing the liquidation service to the protocol.
  3. Funding Rate Risk: When opening a position, the trader is exposed to paying the Funding Rate, which contributes to generating negative PnL on the position and may lead to potential liquidations according to the rules described above.