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One of the most reliable tools in my cryptocurrency investing toolbox is lending on the Poloniex exchange. It's the old-faithful, slow-but-steady, go-to champion of my passive investment strategies. And it's an answer to bitcoin lending on poloniex age old question: Make more of it, of course! I'll be talking mostly about Poloniex, my favorite exchange for a number of reasons: Bitcoin lending on poloniex everyone has their own preferences.

Other exchanges support lending as well, and the general principles discussed here apply equally well to each of them, though the nitty gritty of the UI aspects will differ. There are two types of trades you can do on Poloniex: Whenever someone borrows money to open a short position, it's called trading on margin.

Note that it's also possible to go long on margin by borrowing Bitcoin. The rule of thumb for Poloniex is: The lenders make their profit on the interest they get when the loans are repaid by the margin traders. And that kind of lending is the subject of this article. The last couple months, BTC lending rates to give one example have typically been bitcoin lending on poloniex 0.

That doesn't seem like much on first glance, but it adds up over time:. Typically on an upwards price spike, shorters will arrive in droves anticipating the subsequent dump and consume all of the available loans, driving interest rates up.

But you have to be quick to take advantage, as rates change fast in these circumstances and won't stay high for very long. Once the inevitable dump occurs, short sellers take profits and then loan demands subside again an interesting consequence of this behavior is that sudden rises in interest rates for no apparent reason can be an advance indicator that the market thinks a large price movement is imminent. Unless you're an expert trader I'm a crappy trader and not afraid to admit it this is a much safer way to make money than trading, and still way more than you would get from holding your money in a bank.

Plus it's less work than analyzing charting patterns and watching trading positions all day long. Lending is just one component of what should be a balanced investment approach more on this later. So don't forget to take that into account when calculating expected profits.

Like any investment strategy, you have to bitcoin lending on poloniex the good against the bad and decide if lending is right for your circumstances. Regarding that second disadvantage, it's only really a problem if you are an active trader. If you're like me, you have a long-term view and aim to make a little extra from lending while letting your core holdings gain value over time. Always leave some in reserve to take advantage of good opportunities as they come along.

If I was a better trader, I might adjust those ratios a bit more toward the trading side. Okayyou say, sounds like a non-issue, but cryptomancer what do you mean by "risk of exchange being hacked"? This is a good point to step into. Let's rewind to late Julyjust a month or so ago. I had ETH parked on the Bitfinex exchange and was making decent returns from lending, about 10 ETH per month at the time Bitfinex had much better interest rates than Poloniex when they first started offering ETH margin trading.

But I had a two-week vacation to Malaysia coming up at the start of August, and was a bit nervous about leaving my investments on the exchange unattended while I was gone. So I turned off autorenew on all my loans and let the borrowers pay them back one by one, then on July 29 moved all my ETH off Bitfinex into my private Ethereum wallet. The next day I left on vacation ready to have some fun, with my investments safely secured.

A few days later, relaxing in a cafe with free wifi, I decided to check my usual crypto news sources and see what I was missing. This headline was there to bitcoin lending on poloniex me:.

Holy crapI thought, my blood turning cold. Reading further, I found out only Bitcoin had been stolen. So even if my ETH had still been on the exchange, it would have been safe.

Or so I thought, until several days later this gem came out:. The moral of bitcoin lending on poloniex story is that although rare, exchange hacks are a fact of life in this young industry, and you can't really see them coming.

The chances of being caught in one are definitely non-zero if you lend capital on exchanges over significant stretches of time.

Exchange risk is the 1 drawback of lending cryptocurrencies. But it can be mitigated by good risk management strategies. The more exchanges you spread it out across, the smaller your loss will be if any one exchange is hit by catastrophe. For example, ETH is one of the core investments in my portfolio, which I intend to hold for many years.

I don't care so much about my ETC and am willing to lose it if the exchange gets hacked again or ceases operations. But right now, daily ETC interest rates have been holding steady at around 0.

I figure that Bitfinex might actually be one of the safest exchanges right now, what with a systems overhaul and increased focus on security since bitcoin lending on poloniex. I might be wrong, but I'm willing to take that risk. Poloniex and other exchanges have a built-in way to protect against this possibility by force liquidating accounts that get themselves into trouble. When you trade on margin, your account balance is used as collateral to protect against losses, and that balance determines the limit of how much you can actually borrow.

If a trade turns into a disaster and unrealized losses become too high, after a certain threshold Poloniex will automatically close your position and pay bitcoin lending on poloniex the loan from your account balance. Theoretically it's possible, when the market is extremely volatile, for prices to move fast enough that forced liquidation can't keep up and Poloniex can't get a good enough price to completely pay back the loan. However, these cases are exceedingly rare.

I've been lending on Poloniex for over a year and never suffered a single default on any of the thousands of small loans I've given bitcoin lending on poloniex.

The actual mechanics of it are quite straightforward. Let's start by dissecting the controls on the Poloniex lending page and then I'll explain my preferred method. On the Transfer Balances screen you need to decide what cryptocurrency you want to lend, and then transfer some of it from your exchange or margin account into your lending account, as shown here:. Note that the Exchange, Margin, and Lending columns bitcoin lending on poloniex only show the funds you actually have available to transfer between those accounts.

Capital that is bitcoin lending on poloniex up in orders or bitcoin lending on poloniex loans is not shown. Also, not every single cryptocurrency on Poloniex is available for margin trading and thus lending. If it doesn't have an entry in the Coin column, then you can't lend it. Once your lending account is funded, you're ready to let the good times roll!

Click on Lending from the main menu, and you'll get this screen:. My Balances - shows your free capital in each account, just like the Transfer Balances screen. To create new loan offers you must have a number shown in the Lending column. Click on an entry in the Coin list to see the bitcoin lending on poloniex information for that specific cryptocurrency. Loan Demands - don't even look at this. Most people, when they open a margin position, don't really care what interest rate they have to pay.

The system will automatically loan out money at whatever the lowest offer rate happens to be at the time. That said, there is a feature that allows margin traders to specify they won't accept a loan if the interest rate is higher than a specified threshold. And that's where these loan demands come from. Loan Offers - this is a list of all available loans that lenders are currently offering, bitcoin lending on poloniex by interest rate. The current lowest rate plus total amount bitcoin lending on poloniex offered gives you a way to see how much demand there is for margin trading of this particular cryptocurrency.

Typically you will want to offer a competitive interest rate near the top of the offer list or your offer will rarely be taken since Poloniex automatically loans from the top of the offer list whenever a new margin position is opened.

My Open Loan Offers - these are loan offers you have created, but nobody has taken the loan yet i. My Active Loans - when an bitcoin lending on poloniex offer is taken by a margin trader, it moves to this list and you start making interest on it.

When someone pays back a loan, it will vanish from this list or move back to My Open Loan Offers if you bitcoin lending on poloniex auto-renew turned on and the interest paid will be added to your lending account balance bitcoin lending on poloniex in My Balances and the Offer BTC box. The green numbers in the Fees column represent the total interest accrued on each bitcoin lending on poloniex, which will be paid to you when the loan is closed by the borrower.

Always follow the above strategy religiously. After a while, it should get to be like muscle memory: Keep your money working for you in active loans all the time regardless of whether the current rates are high or not.

That's better than setting too high rates and then having your money sitting around useless when your loan offers don't get taken. It's OK to have dozens of small loans open. Typically you'll start with one or two big loans, and then those will fracture into smaller and smaller loans with various rates as time goes on. It makes my OCD twitch, but it's normal, don't worry about it. Also, your entire loan offer might not be taken all at once. People could take small bites out of it, generating several active loans from one single loan offer.

So there you have it. Now go forth and loan, my fellow Steemians. And may the interest rates be ever in your favor! For a different perspective on Poloniex lending, check out this excellent article by nxtblg. He offers some good case studies of lending Factom and Bitshares.

Know other good articles on this subject? Feel free to share in the comments below! When I first started lending, I found myself wishing there was a bitcoin lending on poloniex guide to show me the ropes. But I couldn't find anything good, so eventually decided to just write one myself. That's exactly what I was wishing for!

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Lending Bitcoin on Poloniex currently earns 0. Who are you lending to? And why would the mostly anonymous borrower ever pay you back?

This post will address these questions as more, as we dive into the fast and frequent world of lending to margin traders on Poloniex. At its core, lending on Poloniex is peer-to-peer margin lending. In traditional financial markets, margin lending is mostly monopolized by the brokers who create the trading platforms. What makes this development exciting is that we can make money on cryptocurrency exchanges from something other than trading.

Lending to margin traders can be a lower risk though still not risk free way to earn a significant return on otherwise idle funds. The mechanics of lending on Poloniex are straightforward. Lenders deposit funds to their Poloniex account in the same way that traders do. They transfer their balances to a lending sub-account and create loan offers for margin traders using the Poloniex loan order book.

Loan offers for a given currency are organized in the order book based on how favorable they are to the borrower. Loan offers with lower rates and longer maximum durations get priority over loan offers with higher rates and shorter maximum durations.

When margin traders execute trades that require them to borrow funds, the Poloniex platform will match the trader with the best available loan offer the one at the top of the order book. At this point, a loan is opened. The loan will stay open until the margin trader closes the trade or the maximum duration of the loan is reached.

When a trade is closed, the interest on the trade is paid from the margin trader to the lender. The interest is calculated based on the agreed upon rate and the duration of the loan. In the lending market, demand originates with margin traders who want to borrow a specific cryptocurrency for the purpose of speculation.

Demand from margin traders will cause lending rates to rise as they compete to borrow funds. Supply in the lending market originates with lenders who wish to earn a return on their idle funds by lending them out. Excess supply will cause lending rates to fall because lenders will compete to offer the best rates to the margin traders. It may seem unintuitive, but this huge increase in demand for Bitcoin loans was caused by the large increase in the Ether price.

The Ether price increase created lots of demand from margin traders who wanted to borrow Bitcoin. The traders then sold this Bitcoin for Ether with the hopes that the Ether would continue to increase in price. Default rates in this scenario are high, especially in the cryptocurrency space where the lender has little recourse if the borrower defaults. As soon as the borrower closes their trade, the funds are automatically returned to the lender.

Additionally, Poloniex is able to implement strict risk controls for borrowers, where the borrower's loan is auto-liquidated if their available collateral drops below a certain threshold. As of this writing, our lending bot has completed , loans, with 0 defaults. The cryptocurrency space has been plagued with exchange hacks and failures, such as the now infamous Mt.

If an exchange becomes insolvent or otherwise loses customer funds, there is a high probability of a substantial or total loss for the lender.

Exchange outages, and periods of high volatility are highly correlated because the increased trading volume caused by volatility taxes the exchange's servers. A temporary exchange outage during a period of high volatility could lead to margin traders losing all of the collateral in their accounts as well as some of their borrowed funds.

In this situation, the trader would be unable to repay the entirety of their margin loan. When funds are on loan to margin traders, they are not available to be exchanged until the margin loan has matured. Because the borrower will be making money from the crashing price, they will not want to close the loan, and you as the lender could be left holding the bag.

While it is not without risk, peer to peer margin lending can be an effective way to earn a significant amount of interest on idle cryptocurrency. It carries significantly less risk than trading, and should carry a substantially lower default rate than peer to peer lending on platforms where users have full custody of their borrowed funds. Do your diligence, never invest or lend more than you can afford to lose, and consider automating your lending for higher returns with less effort!

This was really helpful. I just searched google for lending on poloniex and your article came up among others. It is the best. I invested in Ether and as soon as I tripled my money I took out my original investment. Now I consider all my gains to be the house's money. So I'm looking to loan some out. Glad I found your post! The Long and the Short of Lending on Poloniex. Overview At its core, lending on Poloniex is peer-to-peer margin lending.

Mechanics The mechanics of lending on Poloniex are straightforward. Supply and Demand In the lending market, demand originates with margin traders who want to borrow a specific cryptocurrency for the purpose of speculation. Risks Lending to margin traders on Poloniex carries three main risks for the lender. Conclusion While it is not without risk, peer to peer margin lending can be an effective way to earn a significant amount of interest on idle cryptocurrency.

Authors get paid when people like you upvote their post. Thanks for sharing, i'm new to margin trading on Polo and this explains a lot.