I Got Margin Called on HERO Today. Things Don't Always Go Up.

in hero •  5 months ago


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We human meat bags like to share our success stories on social media in a "Look at me, I'm awesome! You should be part of my tribe to be awesome too!" sort of way. What I personally enjoy is genuine, "Yeah, I'm an idiot too sometimes" perspectives.

Today I lost 16,126.97 BitShares.

Let me tell you the story so you can hopefully avoid a similar fate.

I've posted many times on how fantastic it is to short the USD using BitShares and bitUSD:

A really important thing to keep in mind is this only works if the price of BitShares is going up compared to USD. An additional hard lesson learned today was that being highly collateralized is not a guarantee you won't have your margin called.

I've been playing around with HERO lately which is a pegged asset based on a formula. I won't go into the details here, but you can follow @stan's blog to learn more. For the most part, it moves along with bitUSD. It's also new, speculative, and has comparatively low liquidity (for now). They are supposed to trade for around $156 (based on the peg and the formula). I used my BitShares as collateral to create 50 HERO (much like the articles above describe creating bitUSD). There were two different times I could have sold some BitShares to close out my HERO margin and make a small profit. But... I didn't. I held on believing in larger future rewards.

Today, I was surprised to see this:

Ouch.

Even at more than a 5:1 collateral ratio, my margin was called. The 50 HERO I had sold for 25,763.69 BitShares was just automatically purchased back for 41,890.66 BitShares. I essentially lost 16,126.97 BitShares in the process (which was worth over $5k not too long ago).

Here are the purchases of BitShares I made using the HERO created from margin:


And the resulting carnage today:

The BitShares Margin Positions work as smart contracts by not only liquidating your position if your collateral falls too low (I believe 1.5:1 is the breaking point, but this page is too confusing for me to fully understand), but also by liquidating your position if someone requests settlement and you happen to have the lowest collateral ratio on the network.

This can happen even if you have a 5:1 ratio or better, like I did.

The BitShares and OpenLedger wallets have a slider you can use which only goes up to 6:1:

I found out the hard way, if you want more than that, you have to manually enter in a higher number in the Collateral box.

Today, when I saw the price of BitShares tanking against HERO, I considered updating the ratio but figured, "Surely 5:1 will be fine." I was so wrong.

I hope this helps some others avoid a similar fate. If BitShares drops 30% or more like it did today and you're not highly collateralized, you may be forced out of your position at a terrible time. My previous posts on this topic make it sound like you can make free, easy money shorting the USD with BitShares. For the most part, you can, if the price of BitShares is going up. Today's post also demonstrates how you can lose big.

Be safe out there, kiddos. Crypto trading is a wild ride, especially if you include margin trading.

I'm still up in the long run, but I might take a little break from playing the margin game. I've enjoyed the process of learning, even if the tuition cost is a little steep at times.

If you're looking for a way to keep track of your crypto holdings and trades, check out The Cryptocurrency Bank Spreadsheet I created a few months ago.


Luke Stokes is a father, husband, business owner, programmer, and voluntaryist who wants to help create a world we all want to live in. Visit UnderstandingBlockchainFreedom.com

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I'm down close to 35K BTS, had shorted around 600 HERO at an average of 550 BTS/HERO, primarily based on Stan's 4th of July kickoff - I, like many others, assumed that when the HERO contest started there would be some serious and well organized market action to spike BTS and drop HERO, thereby creating the initial pump "Look at all of these people that are making a fortune with HERO, be like us! FOMO, away....!"

I still believe in HERO and it is a much needed asset in both fiat and crypto economies (imagine if you had 20-30% of your crypto in HERO prior to this crash, and now were able to go shopping!), but damn, if Stan is going to hype like he did there has to be some action to follow through.

We are all following Stan in Telegram and it sounds like he is making things happen, but there is a large misalignment between the hype and the reality. Hopefully his wealth investors are now taking huge short positions in HERO and getting ready to ramp BTS... for real this time.

You can get called without dipping bellow the minimum collateral ratio. When a settle order executes, if it cannot be satisfied by the order book, it will start eating the least collateralized debt positions until it is satisfied. Settle orderes delay execution by 24 hours, so it is best to keep an eye on the books for their appearance, and adjust collateral accordingly.
I got called on bitUSD the other night this way. I saw the settle order earlier in the day, checked other debt positions and adjusted my collateral so there were sufficient positions lower than mine that I would be safe. Then the price took a dip, and some of the positions bellow mine either increased their collateral and were called, pushing me back within the settlement order's reach. Lesson learned - just because 12 hours ago you were safe does not mean you still are.

Someone really ought to make a bot that can monitor your collateral ratios in their relation to settlement orders and other debt positions, and send xmpp notifications if action needs to be taken to avoid these situations. I would do it myself if I knew how, but unfortunately I haven't had the time to teach myself so far.

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checked other debt positions

How do you do that? Is there a list of all debt positions somewhere?

I agree, a bot like that would be very useful. I do remember seeing a 500 HERO settlement at one point and thinking, "Dang, some people are going to get called on that one." My biggest fail was not realizing I could just put in numbers directly instead of using the slider. And thinking I was "safe" just because of my high ratio.

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Normally you can look up smartcoins on cryptofresh and view all the debt positions there, but it has said "Chain reload in progress... we'll be back in a few minutes!" for over 12 hours now - I've withdrawn my vote for its operator as a witness, at least until I see an explanation for the downtime. Bitshares-explorer.io is still in early phases of development and lacks useful information for now, but should become available at some point in the future.

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This is a good source: http://cryptofresh.com/a/HERO

(Currently down for chain reloading.)

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Cool. I've used this before but didn't think to look up an asset. I'll check it out when it comes back online.

We need a more stable (or mirrored) block explorer. Cryptofresh is often down when I want to check the list of shorters and see where the least collateralised position is.

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If I could find source code for a block explorer,I would self-host a mirror and make it publicly available. There's a github page for cryptofresh, but the last commit was 2 or 3 years ago...

That is a horrible move mate...The risk of playing in that margin. I couldn't say that has never happened to me. Happens to the best of us.

nice article, all adds up values to me, steemit is for you man! cheers

Thanks for the honest update. I really appreciate getting some on-the-ground knowledge outside of the sycophantic comments on Stan's HERO posts.

"My previous posts on this topic make it sound like you can make free, easy money shorting the USD with BitShares."

This is exactly what everyone of Stan's posts sound like. They basically sound like salesmen (at best), with their Yogi bear pictures and their numerous Star Trek references. Not to mention MichaelX aka "Murderistic" on stage, with the "Banx" scammer running the Heronomex show behind the scenes. Love his falsely inflated statistics - the only concrete, fact-checkable thing he said in the video was a 5x understatement of Jamaican average salaries to attempt to make his point stronger. (He claimed it was under $40/month)

If you think I'm slinging mud, just check this thread. Michael has a legit breakdown and Stan responds to very valid observations about surrounding himself with (the appearnace of, at least) scammers and terrible attitudes repeatedly by simply ignoring the valid points, telling someone "You'll see" or "Just wait", then closing with a smiley emoji and a signature disclaimer not to listen to anything he says.

https://bitsharestalk.org/index.php/topic,22957.0.html

Every time I ask in a HERO thread "how is a freely traded asset guaranteed to appreciate at 5% per year" they either ignore me or refer me to some Smart Coin definiton that states "In all but extreme times of illiquidity, these coins are programmed to do X". Then they go back to talking about how many degrees faster Star Trek Warp Speed is than a horse.

Of course, the only time you really need them to do what they are designed is exactly when things get illiquid. As you, unfortunately, appear to have found out.

I think a lot of people are going to get stopped out on this, and the idea of increasing BTS from a point where their $666,666 dollar prize is worth a billion is a pretty laughable claim. Well over 1000x gain.

I wouldn't touch a thing made by a group making these claims this way, and I have less than zero faith in any part of this team other than Stan. It's all really a shame because the idea is appealing, the technology should be there to make it work, and Stan "should" be more competent and confidence-inducing than this.

Even if you ignore everything I've already said above, there is no getting around that all Stan really ever says about the Hero is that it will make you rich and "everyone is going to use it, forget crypto enthusiasts and geeks, we will have mass adoption".

Wow, this is great advice. People often get too confident in their positions and think things will always go their way or forget to check them. I've learned from this as well and it's not fun. Always have your stops set so you lock in any profit that you may have. Thanks for sharing!

Yup, margin trading sucks with crypto, u never know when that whale comes and sells ... cryptos are too volatile for that imo.

Having a margin account to trade cryptos, WOW, that's precarious. Sorry you got dinged, but you were playing it like a real Wall Street Banker, smelling the fruits of his derivatives. Sucks.

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What does Buffett say of derivatives, "financial weapons of mass destruction"?

Although, in the case of bitshares, derivative are also the means of smartcoin production.

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The more I think I know about the alt coin market, the less I know.

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That is misunderstanding. On BitShares DEX there is not a real margin account where you can trade more than you have. It is contrarily. You have to tie at least 2x more value of BTS to lent bitUSD.

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Thanks for the clarification. That's how I thought it worked.

Oh man - that never feels good. Props for sharing the war stories as well man!

I got a margin call once in my life many years ago. I was loaded up to the til doing a covered call play. Well, it's not so covered when the stock market crashes. Learn my lesson 15 years ago, have avoided margin calls since..lol,

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Nice. I'm still up though, I just got limited by the UI in this case. Now that I know how to cover things beyond 6:1, I feel a little better about the process.

Ouch. It happens, dude. Nature of the beast. Threw you a 100% up! Better luck next time though, I'm just holding the shit out of bts long-term.

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I'm a BTS HODL'er as well for sure. That's why I've been doing the margin trading. Unfortunately, BTS is having a tough month after such a quick rise recently.

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Yep agreed. It's on the comedown of its high. That loss will be nothing to you in a year ;-)

I closed my BitUSD position a few days ago...at a lost. When a saw the price of BTS going to 0.20 I new it wasn't good. The next floor is probably at 0.11 USD. Oh well!

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I have one of those open too. I'm going to attempt to keep it alive... we'll see if I take the loss or not. I'm currently at 10:1 on it.

Gotta be careful with margin. I wouldn't touch it myself, especially in crypto, it's very dangerous. Sorry for your loss, I'm sure you'll recover and come back stronger and earn it back faster

One of the most interesting things about trading is that you have to be aware of the volatility of the item in question. Such as Samsung with the exploding phone not too long ago, that caused it shares to plummet. The cryptocurrency for better or worse is chaotic and very volatile. That the reason why bitcoin and etherium went up to mars and now they landed back to the moon. Margin trading is not bad it just a risk and you have to make sure it not money that you can lose. I am glad you can look back at this and laugh for a bit. Good luck out there.

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Always good to laugh, for sure. And, I've found, it's much easier to play these games when you're playing with profits (which I'm mostly doing).

@lukestones Damn it!

But never mind, bud. It's a lesson you and us all have learnt now. Thanks for sharing..

That's sucks, I stop doing margins in 2001... Lost it all. I was like shit! haha

Ohh.. sorry for your loss sir.. yes the crypto market is down these days... Hopefully it will rise again... It will be better to wait for the right time to use it in the market... sometime we have to face this kind of experiences in our life... And we can't do anything..

Damn! Take care Luke! There has been better days in crypto!

Ouch! Sorry to hear that mate! :[
BTW, I just received my SBD deposit on poloniex exchange!

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Nice! Glad to hear that came through. :)

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Yeah but when I deposited my SBD there, SBD was 2+ USD. Now it's less than 1 USD! :[

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Yeah, I just noticed that. $0.90! Surprising.

Wow that sucks man.
Sorry to hear that.
Im new to the crypto space so I dont know much about those BitShares. Im learning a little here and a little there.
Thanks for sharing so people like me can learn.
Keeping it real even if its a bad day are hard to come by with people posting.
Thanks

Very sad story sir.. i'm also having a loss on crypto.. what to do..?

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Well you only technically lose once you sell for a loss (or get margin called like I did). I mostly just hold during market corrections.

Thanks for sharing the good, the bad and the UGLY. Sorry to hear, but I'm sure you are still WAY up in the grand scheme of your crypto dealings. It's impossible to not end up giving some of it back.

Great post man very helpful!

I am sorry for your loose. 😢😢
Some people lost maybe more that this. One of the biggest Bitcoin Exchanges was hacked the other days and a lot of people lost their data.
The news here: https://steemit.com/bitcoin/@borban/bithumb-exchange-has-been-hacked-the-risk-involved-in-crypto-investment

Ouch. Live and learn, I guess. I just you'll bounce back, man! You always do a great job being transparent here, Luke. I'm sure many people would learn from this and be more careful not to go through the same thing you outlined here.

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That's my goal! The more we all educate ourselves through our shared experiences, the more we can all grow and improve.

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That was my initial goal in Steemit actually :) I really abhor the notion of needing to experience something before learning from it. I mean, why can't we just learn from somebody else's experience? Somehow, it feels like a scenario where people do the same thing expecting different results. We all know how that goes.

When I failed to get my message across, that's when I switched gears and just focused on telling stories haha!

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Some people only learn through experience, so I think there's room for all forms of learning. I learned when I made 19k+ BitShares in 9 days shorting the USD and I learned when my margin got called for 17k the other direction.

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Oh well, you still made a 2k profit with all things considered.

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Yep. I think one of the defining characteristics between those who are financially well off and those who aren't is there willingness to take many calculated risks. Even with some losses, rational, logical risks done over and over again with resources they can afford to lose eventually pay off in a positive way. The challenge, I think, is those who have no extra resources don't have the opportunity to safely take those risks, so they have to be overly conservative which keeps them from ever being wealthy. It's a feedback loop either way... towards more wealth or more poverty.

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Very well-put! I think that goes beyond finances, talking about general success. Those who are willing to take many calculated risks, even though they might incur significant losses have a way better shot than those who sit idly by. A feedback loop is right. No one would ever get to somewhere they want if they don't take that crucial first step. Very insightful of you, Luke! :D

@lukestokes,
I did margin trades at forex but in crypto I didn't try this out. Coz I feel margin trades can be a loss as I experienced in forex. Thank you very much for this sharing your experience. This will help the community to understand crypto trading is not a safe heaven. Really sorry for the loss that you have experienced.

~

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Cryptos have crazy moves. I don't think margin trading with cryptos would be a wise thing to do. Not even with the shares of small companies because they too have crazy moves!

Sorry man... Taking some punches myself, but margin trading is beyond me (for now). On the bright side, now is a great time to pick up some Bitshares. They haven't been 0.15 cents in a while.

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I'm worried about a continuation of the crypto down-trend, though. Posted about the BTC/Steem down-trend a few days ago. Careful out there.

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Yeah, but all my other cryptos are down also, and I still can't deposit Steem to Open Ledger. Not sure what's up with that, but I hope they get it fixed soon.

Thanks for sharing this horrible experience with us @lukestokes.

Many of us are doing the same mistake when they purchasing and trading bit coin and other cryptocurrency.

Your experience may matter a lot to them.

Hope you @lukestokes never do the same mistake because experience is the best teacher

I never touch these things but I guess..gambling IS gambling.

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Well, there's gambling and then there's gambling. Pulling the one-armed-bandit is playing a game of odds against yourself. Life is mainly made up of random events we create narratives for. So to figure out the future we ask questions like:

Over the next 5, 10 or even more years, will systems of finance be more and more influenced by blockchain technology and cryptocurrency and has history (so far) shown that a raise in value for that sector generally raises the value of all other serious cryptocurrency projects?

If the answer is yes, then it seems more like a rational guess about the future than outright gambling. The key is timescale and ability to absorb risk. My failure here was a technical one relating to how this specific margin system works. I still think crypto will be worth much more than non-crypto in the long term future, with much volatility in between.

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what if systems of finance (and other enterprises) just adopt the blockchain technology and ditch the shitcoins we are trading? What if this "crypto-economy" is nothing more than a pilot program. visa for example can adopt blockchain. then what?

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Who's trading shitcoins? I try to stick to ones I think can bring real value. I try to, anyway. ;-)

I think it's inevitable they will adopt this technology. If an ICO today earns 1000x returns because of lack of competition, that's not surprising if in the future they will earn far less and actually have to compete in terms of providing real value. I look at similar to the music industry. Eventually we got Amazon Music, iTunes, Spotify, etc, etc. The centralized "You have to buy a physical CD from this record label even though you only want to listen to one song" days are gone.

The reason the current financial system has so much influence and power is because there are no better alternatives. If you put VisaCoin against a decentralized cryptocurrency which rewards individual holders with profit sharing, which one will customers want to use? Sure, Visa can put more into advertising, UX/UI development, etc, etc... but they'll still have to actually compete, just like the record labels did.

The consumer wins in the end, I think. Of course, there's always government violence to much up the works.

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Well yeah but visa can still offer a few rewards for the sake of competition. they can take tackle the entire crypto market if they want and they won't even notice the difference.

I tried to borrow against the bitUSD and had the same thing happen. I set it with a margin of 3.50 but didn't watch it close enough and got called. Honestly though I am LOVING the learning experience! For me at this point the loss is just paying for an awesome education in what is the future of currency. You keep influencing me to look at different crypto and strategies and I am thankful (even though I know you don't offer advice 😜).

Keep posting this stuff!

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Sounds like you've got a great attitude about it, Dayne. :) I'm glad you're enjoying learning about stuff as much as I am. I try to take a lot of research and pack into something people can digest.

This is a shame. Very sorry to hear about the margin call. I think logic was fine here and you just have to attribute it to bad luck. Best of luck in the future.

Wou, sounds tough, big game big losses/ big wins :)

That is some terrible luck Luke, but thank you for sharing your story. In all likelihood this happens thousands of times more often than people are willing to share the pain.

Really enjoying everything you publish, hope you stick around a long time! =)

Please don't listen to Stan and his claims. These are the same claims he made when bitshares was launched originally. It was very much the same market climate (i.e. a bear market). The price of bitshares will continue to go down over the course of the next 6months. Buying BTS is foolish enough. Shorting anything in relation to BTS is pure madness.

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Did you also predict BitShares would go as high as it did recently?

No ones knows what will happen for sure. Technically speaking, BitShares is a superior technology to many systems currently out there, and it has been working correctly for years. I think it could be valued much higher if more people understood this.

That hurts i guess. I'm wondering if you can share your experience on this trade. In fact, i like to applaud your courage by being so transparent and admitting your shortfalls. Many like to talk about their wins but never their losses.

Luke, luke, luke...

One simply don't gamble with bts. In my mind a dollar each. But that is my mind. The market has a mind of it's own.

I have been a strong opponent of the hero introduction. Too confusing and too much to grasp for people who has never shorted ever. I think @stan has been more clear lately, still it has to be stated loud and clear: one simply don't fool around with the bts.

Well, well. You state an example how difficult betting against the market is.

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Yep indeed. It worked for me many times prior to this though... heheh. Isn't that the gambler's usual reply? I do think the long term prospects of cryptocurrency against fiat are really good, it's just a matter of patience and having enough collateral to properly back your margin if things go the other way for a time.

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I'm sure it will. I follow @kencodes and I can't wait to see finished products.

Im not familiar with bitshares. can someone explain?

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I have flagged this comment because you upvoted it without voting on Luke's post. I see this as an abusive use of your voting power. If I'm mistaken, and you did upvote Luke's post, let me know.

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I linked to 4 articles explaining things in detail. Click the links. Enjoy.