Margin trading could boost asset allocation efficiency

December 06, 2019

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The research team at the Changpeng Zhao-led cryptocurrency exchange, Binance, recently published its November Markets Overview report. It expanded on how the Binance Research team looked into Bitcoin Cash’s impact on order book structure after it was added for margin trading earlier this year, in August.

Detailing the process, the report explained how the team aggregated the percentile-based bid and ask quantities for each of the BCH pairs at various high-frequency snapshots of the order books. Subsequently, the team inspected the lowest 5% percentile among snapshots between 2 September and 25 November for bids, asked aggregated order book quantities, and plotted the cumulative quantities at a daily frequency.

According to Binance Research, cumulative quantity size on the buy-side increased following the addition of BCH to the margin trading platform. Further, the platform noted how between 2 September and 5 November, the 10% cumulative buy quantity increased by nearly 33%, moving approximately from around 3,000 BCH to 4000 BCH.

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However, Binance Research made sure to mention that the increase in the cumulative ask quantity was even more notable, with an increase in the 10% cumulative sell quantity of 50%, from around 4,000 BCH to 6,000 BCH. The team also noted that in the same period, the 10% cumulative ask quantity spiked above 10,000 BCH on two occasions: 5 November and 18 November.

The report added that margin trading could potentially lead to greater efficiency in how resources are allocated within the Binance exchange as market participants carrying a negative sentiment could hold short positions by borrowing assets from long position ‘hodlers’ through lending.

“This rise in both buy and sell side depths for BCH markets illustrate the overall positive effect on the liquidity profile on assets when greater price discovery becomes possible.”
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The Binance Research team added that the support of new assets for margin trading will allow for improved price discovery for many other cryptocurrencies in the months to come.