What are swaps?
Swaps (or swap contracts) are investments offering steady income by providing liquidity to investors trading on margin. An investor opening a swap receives compensation which comes out of fees charged for maintaining positions which were opened using funds borrowed from the investor.
How to enter into a swap?
In order to enter into a swap, specify the amount (in cryptocurrency – BTC or LTC) and the annual rate of interest on investment. The specified amount will be collected from your account balance and placed in a pool from which funds are drawn which are then lent to investors to open positions traded on margin.
How are swaps settled?
Swaps are settled once a minute. Once a minute the value of your swap grows by the amount of interest at a rate you specified. Accrued interest is then added to the capital lent to investors in the next minute, allowing you to benefit from the power of compound interest.
For example, if you opened a swap for 1 BTC with an interest rate of 100% per year, in the first minute 0.000132% of this amount, or 0.00000132 BTC, will be added to your account. In the next minute, you will earn interest on the sum of 1.00000132 BTC and so on.
How do I profit from swaps?
The swaps market operates in accordance with the laws of supply and demand. If the interest rate you offered in a swap is found to be attractive relative to other swaps offered on the market, investors will borrow funds from you and will use them to open positions traded on margin. However, if the interest rate you ask is too high, investors will turn to other lenders – your contract will not generate profit in that case. For this reasons, it is extremely important to set the interest rate for a swap at a competitive level compared to other offers available on the market.
To find out about the current situation on the swaps market, refer to the market liquidity chart. It shows the level of liquidity required by investors at a given moment as well as the swaps market depth at a given interest rate level. This allows you to see the maximum interest rate which investors borrowing funds are ready to accept at a given moment.
The swap settlement process is fully automated and takes place once a minute. Swaps are ranked according to the interest rate asked, from the lowest to the highest. Funds coming from these swaps are allocated to meet positions opened by investors on the margin trading market, until these are fully filled. Swaps used in the process bring profit, while contracts asking interest rates which were found to be too high do not make any money.
Why doesn’t my swap bring expected profit?
Whether your swap brings profit depends on the current situation on the margin trading market. If the interest rate you ask for a swap is too high, investors will use cheaper liquidity and your contract will not generate profit. Because of a dynamic nature of cryptocurrency markets, both the depth of the swaps market and the amount of liquidity used by investors may quickly change. For this reason, it is a good idea to systematically monitor the market to regularly check what the maximum level of profitability of swap contracts is at a given moment.