Integrated KYC/AML Compliance with Sumsub & Scalable

White label exchange software provider Scalable Solutions has integrated Sumsub, an all-inclusive KYC/AML compliance platform. 

As regulation around digital asset management and services is becoming clearer and more demanding, compliance is top of mind for exchanges, institutions and other financial services providers. Having access to a one-stop-shop for all compliance needs can significantly lower the costs usually associated with KYC/AML compliance procedures, such as technology integration and operations, human resources and maintenance costs. 

Sumsub tackles all onboarding and compliance challenges that come with identity verification. It optimizes KYC and AML procedures by converting existing policies into automated digital processes that allow faster and safer customer onboarding. 

Scalable Solutions and Sumsub have partnered to further offer clarity and ease of compliance integration to their clients, which range from exchanges, brokerages, wallet providers, institutional players, fintech companies and more. Hence, the integration is able to:

  • Drive conversion of customers – identity verification becomes a smooth process and no longer a bottleneck in the onboarding procedure. This eliminates user frustration and saves time for financial services providers, creating an overall better customer experience. 
  • Optimize costs – having to coordinate verification with multiple providers is not only time consuming and costly, but also oftentimes inefficient. Sumsub’s user-friendly interface allows transparent checks, improved workflows and customizability, all from one monitor and source. 
  • Champion compliance and prevent fraud – compliance with local and international legal frameworks and regulations (think FATF, FINMA, FCA, CySEC, MAS) is integrated. Fraud recognition services and extensive legal expertise prevent the risk of unlawful activity taking place. 

Before the partnership, Scalable Solutions and Sumsub already had quite a few mutual clients, such as and Changelly, which further convinced the two companies to collaborate.

Mark Berger, founder of Scalable Solutions, added: 

“As a company that values security and knows its importance for our clients, we’re glad to have integrated with Sumsub to provide KYC and AML compliance services that are transparent, easy to navigate and a pleasure to work with.” 

Jacob Sever, Co-founder of Sumsub, said:

“If trading businesses want to avoid fines and keep their platforms out of trouble, compliance with regulatory demands is vital. We’re happy to supply Scalable Solutions with a secure and user-friendly tool. Now their clients can stop worrying about complicated regulations and onboard more efficiently.”




About Sumsub 

Sumsub is an identity verification platform that provides an all-in-one technical and legal toolkit to cover KYC/KYB/AML needs. The company focuses on accelerated ID verification, digital fraud detection, and compliance in over 200 international markets. Sumsub combines top technologies with legal expertise and assistance with financial requirements (FCA, CySEC, MAS, FINMA, BAFIN, etc). Clients include BlaBlaCar, Gett, ESL Gaming, JobToday, Wheely,, Changelly, Decta, Exness, HRS Group.

Awards: Benzinga Global Fintech Awards 2018, The UK Startups 100 2020, PwC nomination for ‘The best use of tech award’.

Sumsub Contacts

Olya Laktyushina

About Scalable Solutions

Scalable Solutions is a global technology and service company that focuses on developing state-of-art white-label blockchain solutions for our clients. The institutional-grade trading software which serves as a B2B solution for exchanges and brokers has never been compromised. Besides innovative technology, the security of exchange systems is a significant area of value and pain-point the company is solving for its clients. 

Contact us at

Companies and digital assets: the obstacles to overcome

The blockchain industry and crypto assets in particular have garnered increasing levels of attention from traditional institutions, especially since 2020 has seen the rise of new digital currencies and an all time high surpassing US$ 40,000 for Bitcoin in early January, 2021. Nevertheless, not all circles have shown fondness for the digital assets in question [1]. In spite of the fact that the top ten companies that hold Bitcoin amount to 4% of total supply (not considering lost coins), it seems that even nowadays companies maintain a certain level of skepticism about digital assets [2][3]. One obvious reason behind this resides in the fact that there is no worldwide adoption of regulation and legislation regarding cryptocurrencies [4][5][6]. 

Given this opportunity, we would like to present a -not so obvious- discussion: 


What happens once every major regulatory obstacle has been overcome? Can institutions just open an account and start accumulating digital assets?


Well, the reality is that there is much more than meets the eye. Even though it is estimated that 36% of institutional investors (in the US and Europe) are currently invested in digital assets, the process is not an overnight occurrence. Large financial institutions like pension funds are (at least in the US) public entities, so they are “mired with red tape, resulting in them more often than not being ‘late to the game’ in the realm of the investment opportunities” [7][8]. Companies, whether public or private, also face a series of obstacles before achieving the possibility of entering the cryptocurrency market.

The obstacles for companies accumulating digital assets

Let’s review some of the major factors preventing companies in accumulating digital assets:

  • Statute/Bylaws. Usually, the relationship between size and steering capabilities is an inverse one for companies. As they get bigger in size, internal statute or bylaws prevent them from taking hard course deviations from the long term plan. In the digital asset case, this sets a first obstacle for entering the market.
  • Stakeholders. In cases where the decision is subject to a vote, major stakeholders of a company have a say. As a first stage, management clarifies its stand, and later shareholder’s values are considered through the respective boards. The process of obtaining management and board approval can take months, and even years, given that not only CEO’s must intervene, but every major Committee (Risk, Audit, Compliance, etc.). After this time, the ship may have already sailed.
  • Regulation. This obstacle is highly discussed and merits an article on its own, but we’ll do a quick review. As we can appreciate from aggregated sources on worldwide cryptocurrency regulation, there is no unique position and treatment of digital assets. Historically, the European Union has proved to be friendlier to this asset class, and states in the US have taken independent stances. For the benefit of the industry, this approach is currently changing and the Conference of State Bank Supervisors (CSBS) is establishing a uniform evaluation [3]. Regardless, there is a long way before governments and regulatory authorities reach something resembling a consensus on how to treat digital assets.
  • Institution type. Whether the institution intending to participate in the digital asset industry is a bank, hedge fund, pension fund, or a small private enterprise, it can make a big difference on the obstacles it has to face. Protecting investors is usually the purpose behind financial institutions’ regulation, so it’s only natural for them to endure higher scrutiny.
  • Practical inconvenience. Digital asset volatility impacts the processes involved in registration and reporting. Balance sheet currency conversion as well as income statement unrealized gains/losses on currency translation can be costly, and must be considered to be deemed appropriate given the amount of the investment. Similarly, capital gains, tax credits, and others have to be reported in the company accounts depending on jurisdiction treatment of each asset class.
  • Opportunity cost. Lastly, it can be argued that there is an opportunity cost on assigning funds to digital assets instead of finding productive projects within the company. This argument doesn’t remain inalterable when confronted with the last 10-year return for every major digital asset, surpassing the most profitable public companies. Moreover, this is not a trade-off specific to digital assets, but a common problem within all asset classes.

A famous case

The case of Microstrategy Inc. – the biggest business intelligence (BI) application software vendor – has become one of the most famous in the sphere. The company, currently valued at US$ 3 billion, has an accumulated value in Bitcoin of over US$ 700 million, more than 23% of its total market capitalization at the time of the writing. In a press release, they commented that they found the …

(…) global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of Bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value. Bitcoin is digital gold (…), we expect its value to accrete with advances in technology, expanding adoption, and the network effect that has fueled the rise of so many category killers in the modern era.

Start moving

It is imperative to start getting these obstacles out of the way, even if ultimately the company’s decision ends up being not to adopt digital assets. In the previous case, Microstrategy had earned US$ 78.5 million from business operations for the past 3.5 years alone, while (unrealized) gaining US$ +100 million in the past 3 months from Bitcoin purchases [9]. 

In the meantime

If your company is currently dealing with any of the above challenges, or even others not contemplated, there are ways to get involved with digital assets without actually buying them directly. A relatively new alternative is investing in publicly traded companies that own digital assets. Yahoo, for example, keeps a watchlist on these companies along with actual and estimated returns [10]. Having a trusted partner with first-hand experience in the regulatory digital asset system can make it simpler to navigate this realm and introduce institutional clients to new investment opportunities. Get in touch with our team to get started. 





[1] In this and other articles, we will use the terms ‘digital assets’ and ‘cryptocurrencies’ interchangeably. 

[2] The top ten companies that hold 830400 BTC are: Grayscale Bitcoin Trust,, CoinShares, MicroStrategy, The Tezos Foundation, Galaxy Digital Holdings, Stone Ridge, 3iQ The Bitcoin Fund, ETC Group Bitcoin ETP and Square Inc;

[3] “Bitcoin Treasuries.” Bitcoin Treasuries in Publicly Traded and Private Companies – List of Large Holders, 2020,

[4] “Cryptocurrency Regulations Around the World.” ComplyAdvantage, 15 May 2020,;

[5] “State Regulators Roll Out One Company, One Exam for Nationwide Payments Firms.”, Conference of State Bank Supervisors, 15 Sept. 2020,

[6] Baltrusaitis, Justinas. “Top 10 Companies Hold $15 Billion in Bitcoin, 4% of Total BTC Supply.” Bankr, 30 Nov. 2020,

[7] Adesina, Olumide. “About 33% of Pension Funds, Hedge Funds Now Own Digital Assets Such as Bitcoin.” Nairametrics, 9 June 2020,

[8] Bhutoria, Ria. “The Institutional Investors Digital Asset Survey.” Fidelity Digital Assets, June 2020. 

[9] Helms, Kevin. “Microstrategy CEO Personally Owns $240 Million in Bitcoin – Company’s BTC Profit Eclipses Other Earnings: News Bitcoin News.” Bitcoin News, 29 Oct. 2020,

[10] “Top Crypto Bets.” Yahoo! Finance, Yahoo!, Dec. 2020,

Tokenization In The Sports Industry: Applications & Benefits

Asset tokenization

Asset tokenization has been breaking the ground before its feet with every step it takes. A blockchain application technology (DApp) once thought of as there mainly to improve current processes and provide value in an already crowded space (traditional finance), has displayed its potential and countless uses once again. Despite being initially marketed to tokenize illiquid assets like real estate, art, and others, it has evolved to include almost every conceivable asset. This article explores tokenization in the sports industry and its potential benefits. 

Although we have already introduced the concept of asset tokenization [1], we’ll do a quick review in order to keep this article friendly for every reader.

Tokenization is the “bridge between real-world assets and their trading, storage and transfer in a digital world.” It is the digital representation of a specific right over a real-world asset.  There are many types of tokens that can be sorted into non-exclusive categories, including security, platform, transactional, utility, and governance tokens. When discussing security tokens, we should keep in mind the subtle distinction between security tokens and tokenized securities, with the main difference being whether they’re natively issued on a blockchain or not. On this occasion we will refer to tokenized securities; blockchain-embedded representation of a real world security. This category includes every asset that exists outside of the blockchain and that is subsequently tokenized.

Application: Tokenization in the sports industry

Apart from the asset categories used to describe tokenization (see above), the sports industry is a not-so-obvious one that has been leveraging its benefits. The sports industry has historically moved millions of people worldwide, and has grown in most of its metrics for the past decade [2], but as new situations arise (pandemic, change in the average age and habits of consumers, among others), new challenges and threats must be overcome in order to continue its success. 

Its ecosystem is not a simple one, characterized by various flows among many participants. Among these are the loyal fanbase, clubs, players, sponsors, leagues, brands, media.  

Sports graph flow of money


The sports ecosystem: the flow of money [3]

It is also potentially a sizable market. In 2018, the global sports market was valued at approximately US$ 471 billion. In contrast, the market was valued at 324 billion U.S. dollars in 2011, showing a CAGR of 5.49% for the last ten years. The United States held a 32.5 percent share of the global sports market in 2018 [4]. 

Windows opening for the ball

Some interesting tokenization plays in sports include the utilization of tokens and smart contracts in these next categories [5]:

  • Fan experience

    1. Fan engagement: Tokens could be used for discounts, presale rights, voting rights, network participation (polls for example), invitations to specific stadium areas, meeting with players, loyalty programs, etc.
    2. Tokenized governance solutions: For acting on social issues that matter for token holders like racism, environmental issues, LGBQT rights, treatment of female fans in stadiums, and others [6]. 
  • Processes – Administrative – Financials:

    1. Performance and transfer record: Developing tracking systems for players, getting reliable monitoring, storing data on payments, performance and/or injuries. Also, useful for tokenized salary payments as well as incentive-based compensation. This carries an implicit benefit for tax, audit, and compliance.
    2. Medical data record: Immutable data records on health issues and interventions. 
    3. Player tokenization: Though currently applied on solidarity mechanisms, down the line it’s possible for the entire player contract, marketing and partnership agreements to be tokenized. It can also be used to exploit currently untapped non-professional lines like college sports by helping in supporting young athletes. Players information can be stored in blockchain’s immutable ledger since early stages, through the use of wearables.
    4. Tokenized crowdfunding: Security Token Offerings for raising funds when the traditional system (financial institutions) is not enough.
    5. In stadium payment systems: These can be used for concessions and merchandise payments. By gathering data, it can also help clubs to get a better understanding of their fan base.
    6. Tokenized personal seat licenses that could enable season ticket holders to rent out their seat for separate matches in a safe manner in terms of tracking individual attendance and payment.
    7. Tokenized revenue distribution schemes: In order to facilitate the flows within sports organizations (see chart above), automated and transparent revenue distribution schemes can be based on tokenization. Revenues could be automatically distributed between league, clubs, and potentially athletes, using data from various sources to account for each entity’s contributions, based on transparent stakeholder governance.
  • Commerce

    1. Digital collectibles: Powered by Non-Fungible Tokens (NFT), digital collectibles are usually “individually unique and limited in quantity,” and can have these characteristics verified by the immutability of the blockchain they are based upon.
    2. Ticketing w/ tokens: For events with high demand, high resale potential, and control over who gets access to re-sell your tickets (over 2yr market).  Blockchain registration of ticket purchases ahead of games or season takes would allow fans to exchange their tickets on a token-to-token basis, avoiding the secondary market of selling tickets or even purchasing fake tickets [7].  

Current state of tokenization in sports

People in the sports business are starting to understand the benefits that tokenization can provide to their organizations and business models. European football clubs in different leagues such as Barcelona, Juventus, Manchester United, and others are adopting tokenization schemes for specific purposes (see tokenization plays). Some South American clubs took a first incursion as well [8].


Tokenization of sports with SCALABLE 

At SCALABLE we believe that blockchain technology has the potential to change every major aspect of how we interact with each other. With tokenization as one of its pillars, the revolution gains traction and sets to promote advances for improving our society. The main (or only) question is what we can do to support it. Remaining on the sidelines can only result in being left-out in the long term. Coming back to the sports analogy, we can ask ourselves, ‘How come we (the participants) can not be subject to adopting new technologies, when the sport itself is (smart ball system, hawkeye, goal ref, VAR)?” 

Global sports industries are poised to be disrupted by an influx of capital resulting from the tokenization of practically every facet of the industry. For investors, this represents an opportunity to invest in players with significant upside earnings potential and influence, gaining exposure to an industry set to develop at a rapid pace. Get involved in the tokenization of sports by contacting Scalable here





[1] “DeFi Apps: Asset Tokenization .” Resources, Scalable Solutions, 28 Oct. 2020,

[2] “Business Wire’s Website Is Currently Unavailable.” Business Wire, 14 May 2019,—614-Billion-Global-Market-Opportunities

[3] @kearney. (2018, March 4). “Are you a #Sports fan? In the race for eyeball attraction and premium #content, Sports is a grail to #media and new #digital players : one should expect more money to fuel the sports ecosystem. Read more:” [Tweet].

[4] “Sports Market Size Worldwide 2018.” Statista, July 2019,

[5] Euler, Thomas. “The Tokenization Playbook for the Sports Industry.” Medium, Liquiditeam, 4 June 2020,

[6] Law, Joshua. “How Bahia Became the Most Progressive Football Club in Brazil.” The Guardian, Guardian News and Media, 13 Nov. 2019,

[7] “Blockchain for Ticketing: A Complete Guide.” Event Manager Blog, EventMB, 29 Oct. 2020,

[8] Gregorio, Rafael. “Vasco Da Gama e Mercado Bitcoin Lançam Token Para Investir Em Direitos De Jogadores.” Valor Investe, 5 Nov. 2020,


Ashworth, Will. “How the Tokenization May Level the Sports Playing Field.” Nasdaq, InvestorPlace, 17 Aug. 2020,

Gwi. “Sports Around the World, Consumer Viewing Behavior on TV & Online.” GlobalWebIndex, 2020,

“Top 5 Blockchain Use Cases in Sports and Esports.” Protokol, 28 Oct. 2020,

“Understanding Sports Tokenization from Player’s Contracts, Team Ownership & Arena Revenues.” STO Search & Filter, 10 Mar. 2020,

“World Football 2018.” Nielsen Sports, 2019,

Options and futures: Good, bad, necessary?

Independently of whether they are bonds, stocks, cryptocurrencies or any other asset class, the need for various functionalities comes with the advent of every new tradable asset. Supplying the market with what we consider are necessities for efficient (strong) markets is paramount for long lasting assets and successful exchanges. Following our introduction on exchange functionalities [1] and offerings like margin trading [2] in the digital assets space, we will now dive into similar services: options and futures. 

Brief description of options and futures 

Even though options and futures contracts are both different types of derivatives, they don’t share many more similarities besides that. The key difference lies in the rights and obligations of the contract holders. While futures obligate each party to buy or sell, options give the holder a right (not an obligation). In futures trading, the buyer agrees to buy an asset at a specified price at a specified date [3]. In an options agreement, there is a writer, the person who is selling the right, and a holder, the person buying the right. The holder is buying the right to buy or sell an asset at a specified price, on or before a specified date. The holder has no obligation to exercise this contract, but the writer has an obligation to the holder. Naturally, the exercise of the option will depend on the exercise price and current underlying price. It is said to be “in the money” if the underlying price is higher than the exercise price for call options and viceversa for put options.

The most common types of derivatives include futures, forwards and options, which are based on a variety of assets, including stocks, currencies, bonds and commodities [4]. Given the sheer number of derivatives available today, the market’s size is difficult to ascertain. Statista has compiled a 9 year summary, starting with 12.13 billion futures contracts and 9.42 billion options contracts in 2013 to over 19.24 and 15.23 billion respectively, with a notional value amounting to over US$ 495 trillion in OTC deals by June 2020 alone. [5][6]

History, types and actors

Originally, futures markets were established to reduce risk and manage cash flows among commodity companies. Getting commitments for their produce ahead of time at a pre-arranged price provided a layer of safety to an already volatile industry. Farm output, for example, can take time in preparation and can incur many risks such as production risk (weather and climate), market, institutional, personal and financial risk [7]. Therefore, it makes sense for commodity companies to want to avoid market price fluctuations and uncertainties in the future. (One could make a similar initial case for cryptocurrency miners, trying to secure a base price on their efforts). While traditional markets have been using various forms of derivatives for a long time, their modern varieties can be traced back to the 1970s and 1980s, when the Chicago Mercantile Exchange and Chicago Board of Trade introduced futures contracts [8].  

Exchanges with a derivatives platform that have the option of entering into futures, contracts and/or options are more likely to mainly attract experienced traders looking for various ways of playing the market and hedging positions. 

Benefits and disadvantages to cryptocurrency options and futures contracts

  • Tailored exposure. Futures allow investors to gain exposure without having to hold the underlying cryptocurrency. Futures allow investors to speculate on the future price of an asset. 
  • Custody. Because holding future contracts doesn’t mean holding the underlying cryptocurrency, custody efforts are not a necessity.
  • Leveraged positions. Similarly to margin trading, futures and options provide the possibility of leveraging positions and thus magnifying gains (and losses), with lower restraints from available funds. Margin calls are still applicable for futures, but not so for options trading.
  • Liquidity. There are many futures markets that are liquid, at times even more than their underlying equivalent selves. For instance, the futures market in U.S. Treasury bonds is regarded as being much more liquid than its cash market. In some cases, the futures market becomes the industry benchmark. For example, commodities like gold, crude oil and cotton futures prices form the basis for pricing other related products in the industry. On the other hand, some futures markets are thin, meaning not very liquid. In the case of digital assets, futures markets are several times bigger than their spot counterparts.
  • Volatility. Although some knowledgeable individuals may assume an inverse relationship between cryptocurrency futures trading and volatility (as futures trading commences, digital asset volatility decreases), the truth is that there is no academic consensus in this regard [9][10]. 
  • Price discovery. Some results drawn on the intraday prices show that futures are leading the price discovery at different frequencies even with comparably low trading volumes. [11][12]

Note on valuation: Usually, the valuation process for options is far from being a straightforward one. Several inputs are part of the basic valuation model (Black-Scholes-Merton for European options, for example) to determine its fair price, including underlying volatility, underlying price, strike price of option, risk free rate and the time to expiration. In options contracts, the option right is sold and collected as a premium over the total notional value. In contrast, futures contracts don’t require early premium paid, even though its valuation takes into account a risk-premium when arbitrage approaches are used.

All-in-one SCALABLE

Added exchange functionalities like margin trading and futures and options should not be underestimated only because they can be perceived as “common.” Having robust technology to support the frequent bigger-than-spot markets is of the utmost importance for both exchanges and users, and we take pride in counting with the best out there. Get in touch to find out more about our white label exchange functionalities. 




[1] “Digital Asset Exchange: Main Functionalities.” Resources, Scalable Solutions, 7 Dec. 2020,

[2] “Margin Trading and Why Do We Need It.” Resources, Scalable Solutions, 14 Jan. 2021,

[3] Nowadays, “perpetual” futures have come to existence. These vehicles are now the most traded ones, having a volume traded up to 7 times of its closest fixed date counterpart. They have no expiry date, and usually have higher (funding) costs.

[4] The most actively traded futures contracts are stock index futures. They carry liquidity, leverage and tax advantages over trading index ETFs. These are highly active because of how much money is managed in the stock market. Portfolio managers routinely use futures to hedge their exposure.

[5] “Global Futures and Options Volume 2013-2019.” Statista, Statista Research Department, 23 Nov. 2020,

[6] “OTC Derivatives Statistics at End-June 2020.” The Bank for International Settlements, 9 Nov. 2020,,attributable%20to%20a%20seasonal%20pattern.&text=The%20notional%20amounts%20of%20other,flat%20over%20the%20same%20period

[7] Komarek, A. M., De Pinto, A., & Smith, V. H. (2020). A review of types of risks in agriculture: What we know and what we need to know. Agricultural Systems, 178, 102738.

[8] “Futures Exchange.” Wikipedia, Wikimedia Foundation, 13 Dec. 2020, 

[9] Corbet, S., Lucey, B., Peat, M., & Vigne, S. (2018). Bitcoin Futures—What use are they?. Economics Letters, 172, 23-27.

[10] Kim, W., Lee, J., & Kang, K. (2020). The effects of the introduction of Bitcoin futures on the volatility of Bitcoin returns. Finance Research Letters, 33, 101204.

[11] Fassas, A. P., Papadamou, S., & Koulis, A. (2020). Price discovery in bitcoin futures. Research in International Business and Finance, 52, 101116.

[12] Kapar, B., & Olmo, J. (2019). An analysis of price discovery between Bitcoin futures and spot markets. Economics Letters, 174, 62-64.


Hale, G., Krishnamurthy, A., Kudlyak, M., & Shultz, P. (2018). How futures trading changed bitcoin prices. FRBSF Economic Letter, 12, 1-5.

Margin Trading and Why Do We Need It

As industries grow and the companies that compose them start to trade, marketplaces (most commonly known as exchanges) need to evolve and develop different functionalities to facilitate efficient capital allocation. Providing asset information and infrastructure as well as hedging possibilities like futures and options trading is the starting point for any successful exchange [1]. On this occasion we would like to explore one of these functionalities: margin trading

What is margin trading?

Is margin trading a sophisticated strategy reserved only for experienced traders and institutional desks? Well, not quite. When thinking about margin trading, one should think borrowing. Although there are quite complicated strategies that can be done with it, at its core, day margin trading can be boiled down to asking for assets (mostly cash), and later repaying it. 

Let’s say one wants to buy US$10,000 worth of a stock, but only has US$ 6,000. One option would be to simply buy the maximum amount, even if it’s not an efficient allocation (for diversification purposes, for example). The second option would be to ask for the remaining US$ 4,000, and return it (plus interest accrued, assuming no applicable commissions) later on. 

Benefits of margin trading

Of course, there are many advantages provided to the users of margin trading, and can be mainly categorized by users, and markets-as-a-whole benefits. The latter are enjoyed by all actors, not only margin traders.



Magnifying results. Through leveraging a position (borrowing to buy more than one could otherwise), there is an opportunity for improved return (profits). Liquidity. Studies on stock markets have shown that  liquidity is higher when stocks become eligible for margin trading and that this liquidity enhancement is driven by margin traders’ contrarian strategies [2][3].
Bear markets. Shorting (borrowing an asset and selling it, and later returning it having re-bought it at a new price) provides an excellent possibility to take advantage of markets (or assets) in downward trends. Instead of only gaining when an asset appreciates in price, one can also benefit when it’s decreasing.  Price discovery. Although it’s not an open and shut case, many academic papers have encountered that counting with margin trading mechanisms (like intensified short selling) can help in the price discovery process, making it more efficient [4]. 
Diversification. Diversification benefits can be reaped from margin borrowing when original funds are not enough to position yourself in a large variety of assets because of its price or minimum buy-in. One can also act as lender and use those funds to buy other assets, without disregarding the original position. Market volatility. Margin trading can reduce stock returns volatility, especially in markets where asset prices rise or decline sharply [5][6]. 
Lower interest rates and repayment flexibility. Usually, margin rates are pegged to federal rates, and are lower on several occasions. Traders also benefit from some flexibility on repayment, as long as their accounts meet their required margins. Order book depth. While the impact of margin trading is not close to being academically settled, we suspect that having higher availability of funds for trading can have positive impacts on order book depth, and therefore on slippage [7]. 

Drawbacks of margin trading 

On the other hand, many of the margin trading benefits can be also seen as possible drawbacks:

  • Enlarged losses. Similarly to magnifying gains, leveraged positions can have the same effect on losses. 
  • Margin call risk and liquidation: Intrinsic to margin trading operations are some rules that must be followed. Meeting what is known as a margin call (a minimum equity position used as collateral for borrowing) is essential if one wants to avoid unwanted liquidation of your position.
  • Order-book handled by exchanges against traders. There is an actual conflict of interests in the cases where exchanges manage the order-book and provide the leverage used by those who trade, and is especially recurrent in the digital assets world. Exchanges may have incentives to intervene in operations in order to liquidate certain actors’ positions. Users must do their own research and be aware of the risks entailed in every trading venue.
  • Commission fees. Besides the interest paid for the money borrowed, every venue takes a commission for every transaction that utilizes margin trading, and can have sizable costs impacting the overall return of the strategy. Risk-adjusted returns must be used including all the former topics as a measure of the convenience of the strategy.

Conclusion and SCALABLE

Despite the effort of measuring the exact impact size that margin trading has, it is well known that margin trading availability can help both its users and the market in making the fund allocation process more efficient. This, however, does not mean that it comes without a cost; users should be well aware of its drawbacks and incorporate the added risk to their strategies.

At SCALABLE, we aim to provide every tool out there that can help our white label exchange infrastructure users get the best opportunity for success. Whether it is by our battle-tested security, deep liquidity or various functionalities (like margin trading), we can accommodate the needs, size, and requirements for your exchange to become as successful as possible.






[1] “Digital Asset Exchange: Main Functionalities .” Resources, Scalable Solutions, 7 Dec. 2020,

[2] Qiong, Y. D. Y. W. (2011). Empirical Research on the Impact of Margin Trading on Liquidity and Volatility of Shanghai Security Market [J]. Journal of Central University of Finance & Economics, 5.

[3] ZHANG, B., Pan, L. I. U., & Allen, Y. A. N. G. (2017). The Impacts that Margin Trading has on the Liquidity of Underlying Stocks: An Empirical Research. DEStech Transactions on Computer Science and Engineering, (mmsta).

[4] Chang, E. C., Luo, Y., & Ren, J. (2014). Short-selling, margin-trading, and price efficiency: Evidence from the Chinese market. Journal of Banking & Finance, 48, 411-424.

[5] Chen, M. (2016). The Impact of Margin Trading on Volatility of Stock Market: Evidence from SSE 50 Index. Journal of Financial Risk Management, 5(03), 178.

[6] Zhu, J., & Zong, Y. (2018, December). The Impact of Margin Trading on China’s Stock Market Liquidity. In Third International Conference on Economic and Business Management (FEBM 2018). Atlantis Press.

[7] See our previous entry to dive deeper into liquidity and order book importance:

“The Impact of Liquidity for a Successful Exchange.” Resources, Scalable Solutions, 30 Sept. 2020,


Gu, D. (2018, July). Research on Influences of Margin Trading on Liquidity and Volatility of Market. In 2018 3rd International Conference on Education, Sports, Arts and Management Engineering (ICESAME 2018). Atlantis Press.

“Understanding the Benefits and Risks of Margin.” Fidelity, Fidelity Learning Center,

Our Clients

Quer saber mais? Entre em contato