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When trading options on Buffer, there are a number of key parameters to keep in mind. Specifically, these are:
In order to limit the BLP exposure per trade, we implemented a limit trade size that is relative to BLP size.
- Max Amount:
The option size a user buys depends on the pool’s available liquidity. Currently, the maximum liquidity utilization rate is capped at 40%. There is also a maximum utilization rate per asset per direction up/down, which is currently capped at 2% to 3% (depending on the asset pair).
- Max trade size:
In a single trade, a user can trade at most 0.25% of the pool’s available liquidity. In case the user tries trading for a greater amount of their partial fill is allowed, then the trade is opened for the max possible values; otherwise, the user is refunded.
- Partial Fill:
Partial fill is an advanced setting that opens a trade using the max possible value within the implemented max trade size limit. If the user tries to buy trade for more than what the pool allows then the contract will place a trade for the maximum possible value and refunds the rest of the fees back to the user.
On Buffer, slippage is used as the accepted price movement b/w when the user initiates the trade and when the trade is actually opened.
Buffer charges Trading Fees on the traders' position size. Buffer employs a "Dynamic Pricing" mechanism to incentivize or penalize traders, with the aim of maintaining balance in the Open Interest (OI) across various markets and promoting diversification among traders.
When you place simple Up/Down orders on, Buffer includes a spread in to the strike price. The price impact will be specific for each pair, and will also be different on each side (Up/Down).
Buffer put in multiple measures to minimize the risk of LPs taking on too much one-sided exposure, allowing them to continually earn on protocol generated fees.