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FWX Leverage Swap: A New Experience in Margin Trading 

FWX Leverage Swap: A New Experience in Margin Trading

March 15, 2024

FWX is a Leverage Swap, an alternative to Perps DEX for leverage trading. Leverage Swap is an enhanced experience of on-chain Margin trading. FWX offers a simple and sleek on-chain leverage trading experience for traders while offering lenders a secure and high potential money market protocol. 

What is Margin Trading?

What is Margin Trading?

Margin trading involves borrowing funds from a broker or a liquidity pool to trade assets in the spot market. In traditional finance, this typically occurs on centralized exchanges, where traders can borrow funds to increase their buying power and potentially magnify their profits or at the same time enabling shorting in the spot market. In DeFi, the most straightforward margin trading is to access Money Market Protocol (Lending Pools) to borrow assets for leverage trading. 

How does Margin Trading work?

Margin trading involves utilizing borrowed funds from a broker or exchange to increase the size of one’s trading position beyond what would be possible with only the trader’s capital, necessitating the opening of a margin account with platforms that offer this service.

Traders would deposit cryptocurrency or cash balance as collateral, subsequently enabling the trader to leverage their deposited funds to borrow additional funds from the exchange, with leverage ratios varying depending on the exchange and the specific asset being traded. Common Leverage ratios are 2x, 3x, or 5x, thereby providing the trader with the capability to enter larger positions than would be feasible solely with their funds. 

Once the funds are available in the margin account, the trader can place buy or sell orders akin to those in a regular Spot trading account, yet with the added advantage of being able to magnify their positions, thereby potentially increasing profits; however, margin trading necessitates adherence to minimum margin requirements set by the exchange.

Traders must maintain in their margin account relative to the size of their position, and failure to meet these requirements can result in receiving a margin call from the exchange, prompting the trader to either deposit additional funds or close out positions to restore the requisite margin level. 

Margin trading typically incurs interest charges on the borrowed funds, accruing over time, in addition to fees for executing trades and holding positions overnight, and despite its potential to amplify profits, margin trading also entails escalated risks, particularly if the market moves against the trader’s position. If the losses surpass the equity in the trader’s margin account, liquidation may occur, wherein the broker or the exchange automatically closes out the trader’s positions to cover the borrowed funds.

What is Leverage Swap?

What is Leverage Swap?

FWX is creating a “Leverage Swap” as an enhancement to margin trading while giving the Perps trading experience to the users.

In margin trading, traders are borrowing funds to leverage trade in the spot market which pushes or pressures price as crypto tokens are traded. In contrast, Perps trading allows traders to trade with leverage in the contract market in which the contract prices rely on the spot market while it does not actually affect the physical token.  

FWX Leverage Swap is developed to offer the simplicity of Perps trading while allowing traders to genuinely affect the market through margin trading as well as creates real utilization for liquidity providers.

How does Leverage Swap work?

How does Leverage Swap work?

FWX key protocols are the trading protocol and the lending protocol. The lending protocol offers a lending/borrowing service to users to lend or borrow in a single asset manner similar to other money market protocols. 

The trading protocol, on the other hand, lets traders do leveraged trading on the FWX Leverage Swap frontend which is designed to give traders the best UX from CEX to on-chain trading. 

The core mechanism, Automated Position Hedger (APH) is an FWX unique protocol based on the Automated Market Maker model that matches all users’ orders whether long or short. The APH operates as an investment banker within FWX, utilizing Lenders’ funds and hedging out all the risks.

To do leveraged trades, traders are required to deposit collateral. For example, trading on AVAX/USDC, there is an AVAX Pool and a USDC Pool.

If a trader is trading AVAX/USDC, going Long. His Long position will borrow USDC from the Lending Pool to buy AVAX in e.g. Trader Joe. Thus, the vault will hold AVAX on behalf. When the position is closed, the AVAX bought will be sold and the USDC will be returned to the Lending Pool. If the trader is profiting, he gains the upside while if he’s losing his collateral is paid to the lenders. All the borrowing, trading, hedging and repaying are handled by the APH. 

In contrast, If the trader goes into a Short position on the AVAX/USDC Pair, the APH will borrow AVAX to spot sell in DEX and buy back the AVAX from the DEX to return it to the pool when the short position is closed. Leverage Swap makes Shorts and Longs positions go through connected DEXs making a real impact in the spot market.

This way, the FWX platform and Lenders remained neutral from market direction while traders are still at the advantage of having leverage trading whether in the bull or bear market.

Key points of FWX Leverage Swap

Key points of FWX Leverage Swap

Here are some aspect on why you should trade on FWX Leverage Swap platform;

  • The Simplest On-Chain Margin Trading – No need to borrow margin, just crank up your Leverage
  • Your Trades Affect the Market – All your trades are passed through DEX, Long will push price while Short will pressure the market
  • Trade at Spot Price – All trades are matched at Spot Price, Leverage Swap let you hedge everything easier than most Perps
  • Lower Artificial Price Volatility – All trades on Leverage Swap relies on real DEX Liquidity, no need to worry about fake order book liquidity
  • No Insane Funding Rates – Traders only pay Borrowing Fees which generally are always cheaper than Funding Rates on CLOB model

Some edge for passive investors through FWX Leverage Swap

  • Lending Yield That Goes Along with Trading Vol – Lenders returns are on steroid and will go up along with Trading Volume
  • No Risks from Traders’ Gains – All traders’ positions are fully hedge, Lenders will never be exposed to risks from Traders winning in a bull market
  • No Impermanent Loss – Lenders lend in single asset pools, no impermanent loss possible

Our core mechanism, the Automated Position Hedger Protocol (APH) is what made all these features possible. 

The future of Leverage Swap

As FWX continues to evolve, its suite of protocols expands, providing users with a wider range of options to optimize their positions efficiently. Leverage Swap, a key component of the platform, is poised to become even more user-friendly and integral to maximizing trading strategies. Looking ahead, FWX is implementing an upgrade that will enable permissionless token listings, aiming to fuel accelerated growth within the DeFi space.