📖Opening Trades

Traders can begin trading with as little as $1 in collateral and select from a wide variety of assets and leverage levels.

User Flow

• Traders have the option to select collateral, exposure, leverage, as well as stop losses and take profits. The protocol supports market, limit, and stop orders at open.

• Prices are called on-demand, either via Chainlink low-latency oracles or Ostium's custom oracle solution, depending on the asset. Chainlink Automations or Gelato Functions respectively monitor emitted price request events and trigger price retrieval when requests are initiated.

• At position open, a trader's collateral is deposited into Ostium's trading contract, which stores the collateral of outstanding open trades until further action is taken (liquidation, closure).

Trade Settings

• Side: traders first select the side of their trade – long or short.

• Order Type: the protocol supports three open order types at genesis – market, limit, and stop orders. Traders set limit and stop prices for the latter two trade types.

• Collateral: traders can begin trading with as little as $1 in collateral, so long as collateral amount covers at minimum 2x the cost of trade opening (e.g., minimum $2 collateral if the positions incurs an opening fee of $1, displayed at bottom of trade form prior to open).

• Leverage: traders can select between 1x-200x leverage, depending on the asset. More volatile or lower liquidity assets (e.g., Live Cattle) have lower leverage limits than less volatile and/or highly liquid assets (e.g. GBP/USD).

• Position Size: traders can also determine total exposure by first adjusting position size, denominated in the notional asset, and inferring desired leverage or collateral amount.

• Take Profit & Stop Loss: traders can optionally set and/or adjust TP and SL orders at open. TP orders at 10x (900%) profit are automatically set to reduce tail event risk for LPs. (Please note: maximum and mandatory TPs of 10x is enforced; over time the protocol may increase this threshold or eliminate it entirely should risk management analysis determine this protection no longer be necessary).

Opening Fee Breakdown

A fee is applied to all trades at open. Ostium's opening fee system aims to price externalities of trader behavior resulting from changes in the skew and utilization of Open Interest, thereby nudging traders towards the activity with the fewest negative externalities to the Liquidity Buffer and downstream Liquidity Providers.

Protocol Opening Fee

This fee is a function of three trader-determined variables – asset, leverage and position size – and two protocol condition-dependent variables, skew and utilization. Combining these variables aims to price all externalities of a specific trade. Trades increasing skew generate greater delta exposure for the Liquidity Buffer; as a result, skew-increasing trades are charged a higher baseline fee. Additionally, utilization charges are considered if the consumption of Open Interest is above a defined threshold during periods of high OI utilization. To avoid discouraging would-be arbitrageurs from balancing the protocol, this fee is only charged to “takers.”

The fee charges change according to trade characteristics:

• Maker charge: a trader is charged a “maker” fee if the amount of leverage is below 10x and OI skew reduces with this trade;

• Taker charge: a trader is charged a “taker” fee if the amount of leverage is above 10x or if OI skew increases with this trade;

• Utilization charge: is additionally applied to takers whose trade increases consumption of Open Interest above a defined threshold (70% of OI) during periods of high OI utilization.

*For mixed trades (e.g. closing a long OI imbalance, but overshooting and generating a short OI imbalance), maker fees are charged on the portion of the position that is balancing and taker fees on the portion that generates a new directional imbalance. The same goes for utilization charges.

Thus we define the Protocol Opening Fee as:

$$fee_{protocolOpen}= makerCharge+takerCharge+utilizationCharge$$

Oracle Fee

This fee covers the cost of trade opening using Chainlink or Ostium's custom oracle feeds, as well as the automation cost for price fetching. A fixed fee of $0.50, independent of trade size, is charged to the user to pay for costs associated with price fetching and order triggering.

Open Price & Price Impact

To prevent front-running risk and approximate the true price of entering a position, Ostium's oracle includes a measure of the liquidity constraints of the underlying market. This helps mitigate oracle extractable value and negative externalities to Liquidity Providers.

• Bid/Ask Price: instead of using the mid-price to open or close positions, we incorporate real market dynamics where a long position open price is the ask price and closing price is the bid price. See table below:

	Buy (Long)	Sell (Short)
Open Trade	Ask price	Bid Price
Close Trade	Bid price	Ask Price

• Linear Scaled Bid/Ask Spread: simulating the order-book dynamics involves creating a simplified model that captures how the spread behaves in the real market. The spread increases with position size linearly, meaning that a big trade has a larger spread than a small trade. The formula for the price impact (K represents a constant):

$$Spread_{long}=k_{long} \cdot PositionSize\\ Spread_{short}=k_{short} \cdot PositionSize$$

We dramatically minimize exploit opportunities resulting from underlying market liquidity or increased spreads during market events by simulating real market dynamics and incorporating resulting liquidity information into the price at which a trader can enter a position.