📌 Introduction

Traditional leveraged trading often comes with high risks, including forced liquidations when the market moves against you. With Rain.fi’s Trade function (Called Margin Swap too), you can open leveraged positions without the risk of price-based liquidation as long as the loan is active !

In this article, we will explain:
✅ How Rain.fi’s leveraged trading works
✅ Why you won’t be liquidated due to price movements
✅ How to optimize your leveraged positions
✅ Best practices for risk management

What Is Trade on Rain.fi?

The Trade function (also known as Margin Swap) allows users to borrow funds with leverage to increase their trading exposure, without the traditional liquidation risks found on centralized and DeFi platforms.

☝️ Key Difference: Unlike standard trading platforms, your position will not be liquidated based on price movements. Your collateral remains locked for the entire loan duration, and you can manage your position as you see fit.

⚙️ How it works

1. You deposit an initial amount (Called Deposit).
2. You select a leverage level (e.g., 2x, 3x, or more), determining the borrowed amount.
3. You choose the pool you wish to borrow from
4. Your total collateral (deposit + borrowed amount) is locked until the loan expires.

At any time, you can:

• ✅ Sell your position → Close the trade, repay the loan, and take profits (or losses).
• ✅ Repay the loan → Recover your collateral in full.
• ✅ Extend the loan duration → If your position is negative, you can pay fees to prolong the trade, waiting for a market rebound.

⚠️ If no action is taken before expiration and your position is negative, your collateral will be transferred to the lender.

⬇️ You’ll find our guide just below. ⬇️

💦 How to Use Trade Tool on Rain.fi ? Our Guide In 6 Steps :

1️⃣ Choose the collateral

Here, to make your first loan, you need to select the asset you wish to deposit, but…

Which collateral to choose? 🧐

• Stablecoins (USDT, USDC, etc.) → ✅ Recommended for a stable base and better risk control.
• Volatile assets (SOL, JLP, JUP etc.) → ⚠️ Higher risk if the deposit asset and borrowed asset move in opposite directions.

💡 Example of a bad scenario: Depositing SOL while borrowing FWOG. If SOL drops in value while FWOG rises, your position may deteriorate.

2️⃣ Select the asset you wish to Borrow/Long

Next, you have to select the asset you wish to borrow/long against, i.e. the one you wish to invest in.
🚨If you’re new to this market, make sure not to choose an asset with high volatility if you plan to use significant leverage.

3️⃣ Pick an leverage level

• Low leverage (2x-3x) → 🛡️ Safer, reduces risk exposure.
• High leverage (5x+) → 🎢 More aggressive but riskier.

💡 Start with lower leverage until you fully understand the mechanics of Trade/Margin Swap.
🚨 If you’re new to this market, make sure to use reasonable leverage if you’re borrowing a highly volatile asset.

4️⃣ Choose the pool from which you wish to borrow

The final step in taking a loan is choosing the liquidity pool, which determines the loan conditions based on your preferences.

Key parameters to consider:

⏳ Loan Duration → The loan duration determines how long your borrowed funds remain locked before repayment is due.

• Short durations (1–7 days) → Ideal for quick trades, minimizing exposure.
• Longer durations → More flexibility but higher interest costs over time.

📈 Annual Percentage Rate (APR) → The APR is the interest rate paid on the borrowed amount, expressed annually but prorated for the loan duration.

• Example: A 50% APR means you’d pay 50% interest over a year, but for short-term loans, interest is calculated based on the loan period.
  Borrowing $1,000 at 50% APR for 5 days → Interest = (50% / 365) × 5 × $1,000 = $6.85.

💡 Higher APR = More expensive borrowing but can be worth it for short-term trades if profits exceed interest costs.

5️⃣ Validate the loan

Once the loan is taken out and running, your Collateral (deposit + borrowed amount) is locked for the entire loan duration.

How to Manage Your Active Loan

• Monitor price movements and be ready to sell, repay, or extend.
• Use extensions wisely if the market is against you.
• Don’t wait until the last minute to manage your loan expiration.

📌 Managing Your Loan: Options & What to Do in a Loss

When you borrow using the Trade function / Margin Swap on Rain.fi, your collateral (deposit + borrowed amount) is locked for the entire loan duration. Regardless of market conditions, you always have full control over your loan, allowing you to adjust your position before expiration to prevent forced liquidation.

✅ Market Sell (Sell Your Position) →

Close your position by selling the collateral to repay the loan. If the borrowed asset has increased in value, you recover your deposit and potential profits. If the loan is at a loss, the amount recovered may be lower than your initial deposit.

⚠️ If the borrowed asset has dropped significantly, selling may require additional repayment.

✅ Repay the Loan →

Fully repay the borrowed amount to recover your collateral.
If the loan is at a loss, the value of your collateral may be lower than its initial worth. If the collateral’s value has dropped below the loan amount, you will need to cover the difference out of pocket to fully repay the loan and reclaim your collateral.

✅ Extend the Loan →

Prolongs your loan duration, resetting loan conditions. 
If the loan is in negative equity, you must rebalance by repaying part of the loan to restore a healthy LTV. If the loan is in profit, extending locks in your gains, meaning if the borrowed asset has increased in value, you receive the profits before extending.

⚠️ Extension depends on available liquidity in the pool, and the lender may have modified the loan terms.

🔹Letting yourself be liquidated → In some cases, this can minimize losses if repayment or extension is too costly. However, it increases your liquidation score and does not earn Droplets rewards.

🚨 Key Considerations →

⚠️ If the value of the borrowed asset drops below your initial deposit, selling your position would mean paying to close the loan.

If no action is taken before the loan expires, the loan is automatically liquidated, and the collateral is transferred to the lender, who will bear the losses if the loan is more than 100% in negative equity.

💡 Rain.fi gives you full control over your loan, allowing you to adjust your strategy based on market conditions. 🚀

👌 Why Is There No Liquidation on Rain.fi?

On traditional platforms, if your margin falls below a threshold, your position is forcefully liquidated to cover losses. This often happens due to sudden price swings, leading to unnecessary losses.

On Rain.fi, there is no price-based liquidation:

• 🔒 Your collateral remains locked for the loan duration.
• 📊 Even if the borrowed asset drops in value, your position is not forcibly closed.
• ⚙️ You have full control over when to exit or extend your trade.

💡 Risk is shifted to the lender, who accepts potential collateral devaluation in exchange for earning interest.

❓ Why Does the Lender Take the Loss?

The lenders set their own loan parameters (LTV, duration, interest rate). They accept the risk that a borrower may not be able to sell their position at a profitable price.

Unlike traditional platforms that automatically liquidate the borrower when prices drop, Rain.fi allows the borrower to decide their actions until the loan expires. If no action is taken, the lender takes the loss, as they are the ones who defined the loan conditions.

🚀 We provides unique flexibility for borrowers while ensuring lenders take responsibility for their own loan parameters.

⌛️ How Does Extending a Loan Work?

Extending a loan allows you to prolong its duration, giving you more time to manage your position instead of letting it expire. This is especially useful when the borrowed asset has dropped in value, as it allows you to reset your loan conditions to align with the current market price.

However, if your loan is in negative equity, you must rebalance by partially repaying the loan before extending it. Additionally, when extending a loan, you must pay the same fees as when the loan was initially taken, ensuring the lender is compensated for the new loan period.

Example:

• You deposit 1 SOL as collateral when SOL is $100.
• You borrow $50 with a 50% LTV (Loan-to-Value).
• If SOL drops to $50, your collateral is now worth $50, while your loan remains $50, meaning your LTV reaches 100%.

✅ To extend the loan, you must rebalance by repaying part of the borrowed amount to bring your LTV back within acceptable limits.

✅ If the target LTV is 50%, you would need to repay $25, reducing your loan to $25, while your 1 SOL collateral remains locked.

✅ You must also pay the same fees as when you initially opened the loan, covering the cost of the new loan period.

✅ By doing this, your loan is adjusted to the new market price, giving you a fresh start with a more balanced risk level.

📌 Extending a loan when the collateral has dropped allows you to reset your position at the current market value instead of facing immediate liquidation. This gives you more time to recover and avoid unnecessary losses. 🚀

📌 Check out our FAQ for answers to common borrowing questions.

🌐 Ready to try it out?

Visit Rain.fi and experience a new way to borrow.

Start borrowing from just $10… 💸

🔗 Want to borrow and receive the borrowed amount directly in your wallet to use it anywhere? Learn about Simple Borrowing on Rain.fi here

🔗 Read our full article on borrowing to find out about the different loan solutions we offer.

🔗 Rain.fi Links:

Site: https://rain.fi/
Discord: https://discord.gg/rainfi
Twitter: https://twitter.com/RainFi_
FAQ : https://app.rain.fi/faq

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