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In the initial version of Finn Exchange, both sides of a trade had a cap on the loss and profit. When a user opened a position he/she had a liquidation price and a take-profit price, therefore you could not profit indefinitely from a position.
Multiple users have requested that there would be no profit cap, i.e. so you could open a position and make an unlimited amount of profit in case the price went the right direction. To accommodate this requests we have introduced the concept of liquidity pools.
Liquidity pools are special accounts that have special conditions when trading, namely:
- liquidity pools collect the funding cost for the position
- liquidity pools do not have a cap on the loss (while an ordinary user cannot lose more than he/she puts in, the liquidity pool can make an infinite loss on the position)
- liquidity pools collect the maintenance margin when a position is liquidated and operate a liquidation fund used to pay profits (the liquidity pool balance on Finn Exchange is the liquidation fund)
- liquidity pools pay zero trading fees
Maintenance Margin is necessary to cover the risk of a violent price move and the associated slippage cost.
Liquidity pools are assigned manually by the team behind Finn Exchange. If you are interested in running a liquidity pool on Finn Exchange, please contact us to discuss the details.