I decided to start with margin trading at Poloniex. It is my intention to keep track of my performance, so I created an easy Excel spreadsheet. However, I encountered something strange when I tried to understand Poloniex’ settlement procedure…
Or is it just me who is wrong? Hopefully, anyone can prove me wrong or confirm my calculations.
Margin trading position
So, what’s the story. I wanted to short DASH, which I did not own. Poloniex offers me the opportunity to lend from others for good interest rates. I used it to short 0.5 DASH/BTC (not much, I know), the price decreased, and a couple hours later I closed my position to take my profits. So far, so good.
Here you see the transactions involved with the position (link to larger picture). Opening the position is obvious: (1 - 0.25%) * 0.5 * 0.05777199 BTC = 0.02881378 BTC. I’m a taker, so the fee is 0.25%. Closing the position is more complicated as it has three components:
- Buying 0.5 DASH for a price of 0.055804 BTC
- Payments to lenders for a total of 0.00000297 DASH
- Paying fees to Poloniex (rate of 0.25%)
I thought the position would be closed like this: buying 0.50000297 (loan amount including lending fees) at a price of 0.055804 BTC, over which I would have to pay an additional 0.25%. In a formula: (0.5 + 0.00000297) * (1 + 0.25%) * 0.055804 BTC = 0.02797192 BTC.
Abracadabra with fees
But this is not the case. First, take the counter margin trade (buy order). Half a DASH is bought for a total of 0.027902 BTC. Surprisingly, the fee of 0.00125 DASH is excluded, since 0.5 * 0.055804 = 0.027902.
What happens with this fee? It seems to be part of the settlement transaction in which 0.00125611 DASH is bought. However, this number makes no sense: there is only 0.00000297 DASH left to deal with, not 0.00000611 DASH. The next strange part is the total of this transaction (0.00007009 BTC), because this is the product of the amount (0.00125611) and the price (0.055804 BTC), which means that the fee of 0.00000314 DASH (which is 0.25% of the amount) has not been added.
Turns out that the missing fee has already been added to the amount: 0.00125 + 0.00000297 + 0.00000314 = 0.00125611 DASH. This is the only way I get this fee, for 0.00125297 * 0.25% = 0.00000313 is lower. I have no clue what Poloniex has been doing here…
Nevertheless, the fact that the fee of the closing margin trade has been taken apart and charged again is clearly wrong. It’s like hiring a bike for $10 (your “fee”) and at the end of the day you are asked to pay an additional 5% over that $20.
Matter of principle: who is right?
In the end, the difference is marginal given the small amounts I’m using. I calculated closing costs of 0.02797192 BTC, but Poloniex’ procedure charged me with 0.02797209 BTC (0.00000017 BTC more). I don’t mind getting a slightly smaller profit, it’s merely a matter of principle. Am I right or is Poloniex?
I can imagine all those numbers have made you dizzy. It’s probably easier to understand if you do the calculations yourself. I’d love to hear your opinion, especially if you also do margin trading on Poloniex!