# Decentralized Margin Trading ⎊ Area ⎊ Resource 3

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## What is the Trade of Decentralized Margin Trading?

Decentralized Margin Trading refers to the execution of leveraged positions on derivative instruments without relying on a centralized exchange or custodian for order matching and settlement. Instead, these operations are governed by smart contracts that manage collateral pools and liquidation logic directly on the blockchain. This structure fundamentally alters the custody model for margin assets.

## What is the Collateral of Decentralized Margin Trading?

The system relies on overcollateralization managed by transparent, onchain mechanisms to secure borrowed funds or open option positions. Automated liquidation routines are programmed to seize and sell collateral when the margin ratio falls below a critical threshold, ensuring protocol solvency. The quality and liquidity of this collateral are paramount to system stability.

## What is the Control of Decentralized Margin Trading?

Shifting the control of margin and liquidation parameters from an institution to immutable code introduces a new paradigm for risk management. Traders must understand the deterministic nature of these contract rules, as there is no central authority to appeal a liquidation event. This transparency is a core feature, yet it demands precise modeling of potential contract execution outcomes.


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## [Smart Contract Margin Engine](https://term.greeks.live/term/smart-contract-margin-engine/)

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**Original URL:** https://term.greeks.live/area/decentralized-margin-trading/resource/3/