i.e someone having $100 but being able to trade with $1000 — the borrowing of $900 or 10x leverage.
How exactly does is this implemented in code, whats the mechanism like.
Is there a book where this stuff is described or is it just tribal knowledge?
Here’s how it works in a very simplified model (I assume BitMex works like this except they charge a borrow fee that I left out of my explanation)
Customer wants $1,000 of exposure to an asset by putting up $100 of margin at 10x leverage.
You lend $900 to the customer and with their $100, buy/sell $1,000 of the underlying.
Now you monitor their position. If the underlying moves against them by 10% and their margin deposit is gone, liquidate their position.
You would accomplish this by buying/selling the now $900 of the asset they bought/sold $1,000 of with leverage. If their liquidation caused you to receive less than the $900 you lent to them back, debit the difference from their account. If you receive more than $900 back, then you didn’t lose anything. Good job.
If they don’t liquidate by losing their margin and instead successfully close with a profit, they would get back their $100 + profit - fees, and you would get your $900 back, plus any fees/interest you charged for borrowing money.
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